The UK’s slide into recession saw businesses slash investment at the fastest rate in 18 years during the final quarter of 2008 according to new figures.
The Office for National Statistics data revealed a 7.7 per cent slump in investment in the fourth quarter of 2008 against the same period the previous year - the steepest decline between two corresponding quarters since 1991.
This reflected a 15.7 per cent year-on-year drop in manufacturing and an 8.1 per cent decline in construction and other production investment as industries tightened their belts in the face of the worsening economic climate.
Analysts said the slump “reinforces suspicions” that the economy shrank more sharply than previously estimated in the fourth quarter.
ONS figures in January showed the economy shrank by 1.5 per cent in the fourth quarter of last year - worse than the declines seen in the recession of the early 1990s and the biggest fall in more than 28 years.
Howard Archer, of IHS Global Insight, said revised data for the period, due out today, could show the UK’s slide into recession was steeper than first thought, with the quarter-on-quarter decline in gross domestic product revised to 1.6 per cent.
“Sustained sharp drops in business investment would have very serious negative repercussions for future UK productive capacity and productivity,” he added.
“Businesses are increasingly and substantially scaling back their investment in the face of sharply weakening demand, rising levels of spare capacity, worsening cash flows and very tight credit conditions, deteriorating profitability, and serious concerns and uncertainties about the potential length and depth of the recession.”
Overall manufacturing saw a sharp fall from the previous quarter, of 11 per cent, with a decrease of £402 million across the sector.
Investment by the food, drink and tobacco industry plummeted 26.9 per cent in the quarter compared to the previous year, while chemicals and man-made fibres producers fell 15.1 per cent in the same period and textiles, clothing, leather and footwear declined 14.1 per cent.
In the non-manufacturing industries, investment in financial intermediation dropped 17.3 per cent, while real estate, renting and business was 24.5 per cent down on the previous year.
Mr Archer said: “The marked downturns in the commercial property sector and the housing market are substantially depressing construction investment.”
The ONS figures showed business investment dropped 3.9 per cent from the previous quarter, which was also revised down to a 2.1 per cent quarterly decline.
Malcolm Barr, UK economist at JPMorgan Chase, said the quarter-on-quarter fall was slightly better than forecast, but that the revision to the previous three months meant the decline compared with a year earlier was sharper than expected.
“The compression of credit availability and declining business survey readings on investment intentions have flagged that investment spending was likely to be weak, and the data should underscore that the intensity of the current decline weakness in output owes much to how firms are reacting to the combination of demand uncertainty and impaired access to credit,” he said.
Mr Barr said business investment accounted for nearly 11 per cent of GDP and that he expected official figures for economic growth to be revised down.