Concerns over underlying health of UK economy as 0.3% growth confirmed

ONS says Britain avoided a triple-dip recession because businesses replenished stocks – rather than from surging sales

Britain suffered one of the biggest falls in investment among the G8 last year, adding to concerns that UK businesses are losing competitiveness by refusing to spend on new equipment.

According to an analysis by the House of Commons library, Britain invests a lower percentage of GDP than any other of the leading western industrial nations. The figures, obtained by Labour, show that while most G8 countries have increased investment as a proportion of national income since 2010, Britain suffered the biggest fall of any G8 country apart from Italy.

In France and Germany, capital investment has remained largely stable at 19.9% and 17.2% of GDP respectively. In Britain it fell 0.8 percentage points between 2010 and 2012, to 14.3% of GDP. The US, Japan, Canada, Italy and Russia have higher levels of capital investment than the UK.

The ONS said UK consumer spending rose a meagre 0.1% while business investment fell 0.4%

David Cameron hosts the G8 countries in County Fermanagh in July and is expected to stress the need for the world's leading economies to make greater efforts to generate growth.

The Treasury's independent economic forecaster, the Office for Budget Responsibility, has pencilled in a strong rise in business investment next year in response to growing optimism that the UK recovery will be gathering strength in 2014. However, the OBR has been forecasting a bounce in business investment for each year of this parliament only to see its targets missed.

Ed Balls, Labour's shadow chancellor, said: "Britain has a poor historical record on investing for the long term but things have got worse not better over the last three years. Since 2010 we've seen the biggest fall in investment as a share of national income of any G8 country other than Italy."

"Alongside action now to ensure we have a strong and sustained recovery, we need long-term reforms to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future."

In March Labour published a report by former Institute of Directors boss Sir George Cox, who found businesses wanted the government to play a constructive part in fostering long-term investment.

Figures from the Office for National Statistics showed that business investment was a significant drag on growth in the first three months of the year. The ONS confirmed that Britain avoided a triple dip recession with growth of 0.3% in the first quarter, but a breakdown of the figures showed that investment dropped 0.4%, mainly offset by stockpiling by British businesses.

A Treasury official said several surveys highlighted a nascent recovery in business confidence and activity leading to the expected increase in investment next year. "There are positive signs that activity is picking up across the economy."

The chancellor, George Osborne, is keen to move away from Britain's traditional dependence on the City and government spending as the chief drivers of economic activity. In the first two years of the coalition he focused on providing support for manufacturers and increasing the amount of credit available to firms for investment.

However, separate ONS figures showed that a 0.2% increase in activity across the services sector in March relied heavily on a buoyant banking sector and a modest rise in government spending.

David Tinsley, UK economist at BNP Paribas, described the reliance on stockpiling as "unimpressive". Capital Economics analyst Martin Beck said talk of rebalancing the economy looked "forlorn".

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Article source : http://www.guardian.co.uk