Businesses bet on recovery in the first quarter of the year and invested £32.8 billion — the highest amount since the collapse of Lehman Brothers in 2008, official figures revealed today.
The rise — 8.7% ahead of the same period last year — will fuel hopes at the Treasury and the Bank of England that the recovery is becoming increasingly sustainable with firms gaining the confidence to splash out on machinery and equipment.
The good news from the Office for National Statistics came despite a blow to borrowing, which hit £7.4 billion in April — £1.7 billion up on a year earlier.
The rise was largely because of lower income tax receipts than a year earlier, when many higher-paid employees deferred payments to take advantage of the new 45% top rate of income tax.
The ONS’s latest revisions to GDP growth left the overall pace of expansion unchanged in the first quarter at 0.8%. But business investment contributed 0.2 percentage points as it jumped by 2.7%, even though trade failed to boost wider growth. Household spending — up 0.8% — accounted for the biggest contribution, adding 0.5 percentage points to the economy.
Deloitte chief economist Ian Stewart said: “The recovery is looking better balanced and more sustainable with business investment, manufacturing and construction outpacing growth in the wider economy.”
Employee pay rose 0.8% over the quarter as inflation fell back, easing the squeeze on household budgets.
BNP Paribas economist David Tinsley said: “The rise in business investment is a major plus and helps give the impression that the recovery is broadening out somewhat. Equally the strong rise in employee compensation gives the impression that the spending power of the household sector is building.”
The public finance figures dealt an early blow to the Chancellor’s ambitions of meeting the Office for Budget Responsibility’s £95.5 billion borrowing target for the new financial year.
Receipts from income tax and national insurance contributions were down £1.2 billion on the same month last year, and government spending was swollen by a further £600 million spend on benefits — comprising an extra £300 million on pension benefits, £100 million on public sector pensions and £200 million on social security and disability benefits.
