Businesses slash spending on new equipment and premises

Britain's businesses slashed spending on new equipment and premises by the most on record in the final three months of last year, a sign that the economy's recovery remains fragile. The Office for National Statistics said that business investment fell by 23.5% in the fourth quarter from a year ago, the steepest annual drop since records began in 1967. Vicky Redwood at Capital Economics said: "The fact that investment is still falling sharply hardly suggests that firms are about to drive a strong and sustained recovery. Although investment intentions have picked up, most measures remain in negative territory, with more firms expecting to cut capital spending further than to raise it." Companies invested a total of £27.3bn, 4.3% less than in the previous quarter. The quarterly drop was slightly less than previously estimated, raising some hopes that the fourth-quarter GDP figures could be upgraded further next Friday after their recent revision from 0.1% to 0.3% quarterly growth . Nonetheless, analysts were taken aback by the size of the annual drop. In addition, the declines in investment were widespread across manufacturing (down 5% on the quarter), services, which recorded a 7% drop, and the construction sector, which suffered a 23.2% fall. Only "other production", which includes utilities and mining companies, saw an increase of 10.9%. Howard Archer at IHS Global Insight said: "The worst of the contraction in business investment should now be over, but it is likely to remain limited for some time to come given substantial excess capacity, still limited demand, and ongoing significant concerns and uncertainties among companies over the strength and sustainability of the recovery."