Investment in British businesses shrank by nearly £3bn last year as companies were wary about the impact of the UK’s divorce from the European Union.
Figures from the Office for National Statistics showed that business investment dropped by 1.5 per cent last year, a fall of £2.7bn to £43.5bn.
In the final three months of 2016, investment dropped by £400m which is a fall of nearly 1 per cent compared to the same quarter in 2015.
This marks four periods in a row where there was a slump in business investment, which now sits 6 per cent above the rock bottom level of 2008 when it stood at £41bn.
Ian Kernohan, economist at Royal London Asset Management, said there were some signs that Brexit uncertainty is starting to have some impact on the corporate sector, pointing to the drop in business investment and slower growth in consumer spending.
Shilen Shah, bond strategist at Investec Wealth & Investment, said: "Somewhat disappointingly business investment fell on the quarter, with hints that Brexit uncertainty is hitting business confidence."
He said a slowdown in growth in 2017 “looks inevitable”, predicting there could be a fall in consumer spending as higher inflation hits consumers in the wallet.
Yet ONS figures painted a different picture for the UK’s overall growth picture, with the final quarter of 2016 seeing some of fastest quarterly growth in two years, jumping by 0.6 per cent.
GDP was estimated to have increased by 2 per cent during 2016, slowing slightly from 2.2 per cent in 2015.
John Hawksworth, chief economist at PwC, said the ONS data was a mixed bag of good and bad news, but he said this did not change the fact the UK continued to grow steadily in the six months following the Brexit vote.
Mr Hawksworth expected a slowdown in UK growth this year, predicting a fall to around 1.5 per cent as higher inflation bites into consumer spending power.
This in turn, he said, reduces incentives for increased business investment and hiring in consumer-focused sectors.
“But there could be some offset to this from stronger export growth as the world economy continues its gradual recovery and the pound remains at competitive levels for UK exporters.”
Michael Baxter, economics commentator for the Share Centre, said the UK growth figures had “confounded the doubters”, but said we should expect economic growth to take on a very different shape this year.
He pointed to last month’s fall in retail sales and the housing market’s lacklustre start to 2017, while growth in real wages is expected to fall for the first time since 2014.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, said the lower pound acted as a shock absorber, but warned that uncertainty “lies on the horizon”.
She pointed to the hint from chancellor Philip Hammond that he has a £27bn fiscal stimulus up his sleeve to help maintain momentum in the economy.
“With Brexit negotiations afoot and ongoing geopolitical concerns among the G7, the knock-on effect on business confidence may slow the pace of growth this year, both at home and abroad.”
katherine.denham@ft.com
