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Friday, February 24, 2006

UK Investment Dearth Continues

Ben Bernanke, it will be remembered, corrected himself: what we have isn't a 'savings glut', it's an investment dearth. Here's another example:

The hoped-for recovery in business investment failed to be sustained at the end of last year as official figures published on Thursday showed business investment contracting at its fastest rate in two years in the final quarter.

The volume of business investment fell by 1 per cent in the last three months of 2005, compared to the previous quarter. The Office for National Statistics said that for the year as a whole, the volume of business investment was £113.1bn, up 1.6 per cent on 2004, against growth of 3.3 per cent in 2004.

The figures illustrate the concerns of Stephen Nickell, the external member of the Bank of England’s monetary policy committee who has voted for a quarter-point cut in interest rates for the past three consecutive months, citing weak prospects for business investment as one reason why economic growth was unlikely to grow fast enough for consumer price inflation to hit the Bank’s 2 per cent target in two years time.

In its latest inflation forecasts, published last week, the MPC downgraded its expectations for the strength of recovery in business investment and Mervyn King, Bank governor, has referred to “puzzle” of weak business investment.

The UK economy is definitely one to watch, something 'funny' is surely going on, the hard part is knowing what it actually is. But it seesm there will be no revival from either business investment or consumer spending in the immediate term.