Statistical bulletin: Business Investment, Q4 2012 provisional results

Key findings

• Business investment estimates are a short term indicator of the spending on assets, such as buildings, vehicles and machinery, by manufacturing and non-manufacturing businesses throughout the United Kingdom.
• All business investment data referred to in this bulletin are seasonally adjusted chained volume measures.
• Business investment was estimated to have decreased by £400 million (1.2%) to £30.9 billion when compared with the previous quarter.
• Total non-manufacturing investment decreased by £300 million to £27.6 billion (1.2%) when compared with Q3 2012.
• Business investment was little changed in Q4 2012 in private sector manufacturing, remaining at around £3.3 billion.
• Business investment increased by £100 million (0.4%) when compared with Q4 2011.
• Compared with Q4 2011, estimates of total non-manufacturing investment increased by £300 million (1.0%) whilst total manufacturing investment decreased by £150 million (4.4%).
• There are larger than usual revisions to business investment in this release, largely due to a review of seasonal adjustment. Further details can be found within the revisions section.

Additional information

This bulletin includes commentary on the dataset in addition to relevant graphs and tables. Accompanying background notes provide information on coverage, quality reporting, revisions and publication policy.

Business investment estimates are a short term indicator of capital expenditure by manufacturing and non-manufacturing businesses within the UK. Capital expenditure is defined as the spending on physical assets such as buildings and machinery. More details on capital expenditure are available in section 4 'Methods', in the background notes, under 'Compositions of the data'.

Detailed estimates of business investment at current prices and measured in chain volume terms for seasonally and non-seasonally adjusted estimates are available to download in the Business investment 2012 Q4 provisional reference table 1 to 7. (394.5 Kb Excel sheet)

Definitions found within this bulletin are explained in more detail within the background notes, section 3 'Understanding the data’, under ‘Definitions and explanations’.

Economic Background

Total business investment quarterly growth declined between Q3 2012 and Q4 2012, although it increased slightly relative to Q4 2011. The fall in quarterly business investment growth was mainly due to a 1.2 per cent fall in business investment in the non-manufacturing sector, the largest fall since Q1 2011.

The reason for this moderation in investment, relative to an otherwise generally more positive year, was most likely due to scepticism about future economic performance. Over the fourth quarter, the Markit/CIPS Business Expectations Index for services dipped to an 11-month low as household consumption remained muted in the aftermath of the Olympics, and the Eurozone problems continued to weigh on expectations of export growth.

The Christmas period opened with slow retail sales in November, ensuring that consumer-facing firms had to work hard to secure a share of the scarce household expenditure. Although sales were marginally improved over the previous Christmas, this difficult period for many retailers may have accelerated the dampening of future expectations.

The Bank of England’s Credit Conditions Survey noted that credit availability to firms of all sizes increased substantially through the final two quarters of 2012. Despite a likely cautious rise in demand for credit from firms, having recently and painfully deleveraged after the financial crisis, evidence of this easing of credit constraints in business investment was scarce. This might suggest that while firms may be able to find it easier to invest, they are yet to see a valid reason to do so.

Revisions

There are larger than usual revisions to business investment in this release, for the following reasons:

• The addition of the Q4 2012 data called into question the seasonal adjustment model, and this led to an immediate and urgent review. The conclusion from this review was that the seasonal adjustment model had to be updated, and this has affected the estimates for periods from Q1 2012 (the span currently open for revision). Given the issues this month, the seasonal adjustment will be reviewed again when additional data are received. This could lead to revisions in the revised Business Investment publication in March 2013, when both 2011 and 2012 are open for revision.

• The gross fixed capital formation breakdowns by asset and sector have been revised. Q4 completes a full year of gross fixed capital formation data for 2012, and this dataset can now be used to calculate the proportions used to estimate the breakdowns by asset and sector, including the business investment total and lower-level series in this publication. This replaces the proportions based on 2011 data used in the Q1 - Q3 2012 estimates published in previous quarters. 

• Additional data on public corporations gross fixed capital formation became available in Q4.

Users should also be aware of the ongoing programme of development of the National Accounts systems, which will lead to further improvements in the methods for estimating business investment gross fixed capital formation. A full update of the seasonal adjustment will be undertaken when the updated methods are introduced. Details of the ongoing development and the improvements that will be implemented will be published in an article in March 2013.

Business investment in detail

Figure 1: Business investment chained volume measures

Reference year 2009=100, seasonally adjusted

Source: Quarterly Survey of Capital Expenditure - Office for National Statistics

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Long run time series of Business Investment

The file below contains a long run of business investment estimates in both current prices and volume.

Long run business investment (34 Kb Pdf)

Summary tables

Table 1: Business investment

Table source: Office for National Statistics

Table 1a: Manufacturing

Table source: Office for National Statistics

The £40 million (1.2%) decrease in manufacturing was attributable to private sector investment. The main contributors to this decrease were metal and metal goods, which decreased by £150 million (24.1%), and engineering and vehicles which fell by £150 million (14.0%). These falls were partially offset by an increase in food, drink and tobacco of £100 million (22.8%) and other manufacturing, up £100 million (20.8%).

Table 1b: Non-manufacturing*

Table source: Office for National Statistics

* The definitions used in these tables can be found in the 'Definitions and explanations' section of this bulletin.
** Series may not sum to totals due to rounding.  
      

Non-manufacturing estimates decreased by £300 million (1.2%) to £27.6 billion. This was mainly due to a £200 million (0.6%) decrease in private sector non-manufacturing and a decrease of £150 million (14.4%) in public corporations investment. The fall in private sector non-manufacturing was mainly due to a decrease of £800 million (33.7%) in construction. This was partially offset by an increase in other services, up £750 million (5.6%).

Private sector non-manufacturing investment in other production increased by 37.7% compared with Q4 2011. This sector includes oil and gas exploration and may be partly due to tax relief on income from North Sea gas exploration, which was introduced in 2012.

Background notes

1. Gross National Inventory - Reservations

   Gross capital formation estimates are subject to scrutiny from the European Statistical Commission as to their compliance, comparability and reliability in accordance with the harmonisation of gross national income regulation (council regulation 1287/2003).  Article 1 of the regulation states that GNI shall be defined in accordance with the European system of national and regional accounts (ESA95). Where Member States are deemed not to be compliant with regulations 'Reservations' are placed on the data involved.

   Business Investment is subject to one reservation regarding the inclusion of estimates of cinematographic film originals in the business investment data. A brief guide to the GNI process and the reservations placed on the UK GCF estimates can be found on the ONS website.

2. Code of Practice for Official Statistics

   National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown copyright 2013.

3. Understanding the data

   Short Guide to Business investment

   Business investment estimates are a short term indicator of capital expenditure by manufacturing and non-manufacturing businesses within the UK, at current prices and constant prices both seasonally and non-seasonally adjusted. Business Investment is one component of gross fixed capital formation.

   Gross fixed capital formation includes estimates of capital expenditure on business investment, general government, dwellings and existing buildings for both the public and private sector. Business investment excludes dwellings and the costs associated with the transfer of ownership of non-produced assets. Gross fixed capital formation is used in the compilation of the UK National Accounts’ expenditure measure of gross domestic product.

   Interpreting the data

   When making comparisons it is recommended that users focus on chained volume, seasonally adjusted estimates as these show underlying movements rather than seasonal movements.

   Business Investment estimates are subject to revision because of:

   • late responses to the Quarterly Capital Expenditure Inquiry

   • revisions to seasonally adjusted factors which are re-estimated every quarter

   • annual updating of the Inter-Departmental Business Register (IDBR) that forms the basis of the sampling and estimation for the Quarterly Capital Expenditure Inquiry. This occurs in quarter one and can have an effect on the results published in May.
   
   Definitions and explanations

   Definitions found within the main statistical bulletin are listed here.

   Current price (CP)
   Current prices are the actual or estimated recorded monetary value over a defined period. They show the value for each item expressed in terms of the prices of that period.

   Chained volume measure (CVM)
   A chained volume measure is a series of economic data from successive years put in real terms by computing the production volume for each year in the prices of the preceding year. The data are then chain linked together to obtain a time-series of production figures from which the effects of price changes (that is, monetary inflation or deflation) have been removed. In other words, a series is obtained from the raw data which reflects only the production volume.

   Seasonally adjusted (SA)
   Seasonal adjustment aids interpretation by removing effects associated with the time of the year or the arrangement of the calendar, which could obscure movements of interest.

   Sectors
   Institutional sectors are defined in the System of National Accounts (SNA) glossary as:

    
   Units that are grouped together to form institutional sectors, on the basis of their principal functions, behaviour, and objectives.
   The resident institutional units that make up the total economy are grouped into five mutually exclusive sectors:

   • non-financial corporations

   •  financial corporations

   • general government

   • non-profit institutions serving households

   • households

   In the case of non-financial and financial sectors these can be further broken down into the private sector, i.e. those units controlled by private individuals or groups, and the public sector, i.e. those units controlled by the state.

   Non-Manufacturing
   The non-manufacturing industries are industries that do not produce products. The non-manufacturing industries in the bulletin include construction, distribution services, other services and other production. The other services industries are: hotels and restaurants; financial services; transportation and storage; information and communication; real estate; education; and health and social work. Other production industries include electricity, gas and water, agriculture, forestry and fisheries, and mining and quarrying industries. There is also a small industry entitled other services which includes non-manufacturing industries not included in the groups described above.

   Use of the data

   Business Investment estimates are used by Office for National Statistics (ONS) in the compilation of the UK National Accounts, and externally by the Bank of England and Her Majesty’s Treasury to monitor economic performance and inform monetary and fiscal policy decisions. Business investment is also used by other government departments, such as the Department for Business Innovation and Skills, the business and research communities, education, the media and general public.

4. Methods

   Details on the Business investment methodology are published in the Summary Quality Report for Business Investment. (128.9 Kb Pdf)  This report describes in detail the intended uses of the statistics presented in this publication, their general quality and the methods used to produce them.

   Composition of the data

   Business investment estimates are produced twice each quarter and are based primarily on results of the Quarterly Capital Expenditure Inquiry which collects data on the acquisition and disposal of capital assets in the private sector.

   Both public and private sector estimates cover acquisitions less disposals of vehicles and of other capital equipment together with expenditure on leased assets and new building work. Spending on land and existing buildings, including dwellings is excluded.

   The Quarterly Capital Expenditure Inquiry covers around 95 per cent of the data used in the Business Investment estimates and is sourced from the manufacturing, other production, construction, distribution and other services sectors.
   

   More information about the Quarterly Capital Expenditure Inquiry can found on the following link -   ‘Summary Quality Report for Quarterly Capital Expenditure Inquiry’. (150.9 Kb Pdf)

   Deflation

   It is common for the value of a group of financial transactions to be measured in several time periods. The values measured will include both the change in the volume sold and the effect of the change of prices over that year. Deflation is the process whereby the effect of price change is removed from a set of values.

   The Business investment results are aggregated and weighted and used to produce chained volume estimates in both seasonally adjusted and non-seasonally adjusted forms. The chained volume estimates (reference year 2009=100) are derived by taking the value estimates and adjusting to remove the impact of price changes (968.6 Kb Pdf) using Producer Price Indices.

5. Quality

   Estimates for the Business Investment Statistical Bulletin are based on the financial data collected through the Quarterly Capital Expenditure Inquiry at month two (provisional) and month three (revised). Response rates for the current quarter reflect the response rates at the time of publication. Late returns for the previous quarter’s data are included in the month three (revised) results.  Response rates for historical periods are updated to reflect the current level of response at the time of this publication.

   Table 2: Response rates

    

   At month two (Provisional)				At month three (Revised)
   Period	Overall response rates (per cent) Questionnaires			Period	Overall response rates (per cent) Questionnaires
   2011	Q3	76.1		2011	Q3	91.3
   	Q4	76.7			Q4	91.3
   2012	Q1	75.7		2012	Q1	91.5
   	Q2	74.2			Q2	91.3
   	Q3	79.0			Q3	86.4
   	Q4	76.8

   Table source: Office for National Statistics

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   National Accounts revisions policy

   In adherence with National Accounts revision policy the business investment estimates are revised for specific periods during certain quarters. In line with the revisions policy this month, this publication includes revisions from Q1 2012.

   Revision triangles

   One indication of the reliability of the key indicators can be obtained by monitoring the size of revisions. The tables below record the size and pattern of revisions, which have occurred over the last five years. Please note that these indicators only report summary measures for revisions. The revised data may itself be subject to sampling or other sources of error. A statistical test has been applied to the average revision to find out if it is statistically significant different from zero. An asterisk (*) shows if the test is significant. Details about this revisions material can be found in the document 'Revisions information in ONS First Releases' (244.6 Kb Pdf) . 

   Table 3 shows the revision between the month 2 and month 3 estimates of growth in total business investment and total manufacturing investment. The analysis of revisions uses estimates from Q4 2007 to Q3 2012. 

   The revisions analysis detailed below does not include the estimates published this quarter. The estimates this quarter will be included in the next provisional publication for Q1 2013 on 23 May 2013.

   Table 3: Revisions to month 2 estimates of business investment and total manufacturing investment growth

   Growth in latest provisional estimate (per cent) Revisions between the month 2 and month 3 estimates. Average over the last five years Average over the last five years without regard to sign (average absolute revision) Total business investment -1.2 *1.30 *1.86 Total manufacturing  -1.2 0.12 2.54

   Table source: Office for National Statistics

   Table notes:

   1. Quarterly, chained volume measure, seasonally adjusted.
   2. Using standard statistical tests, the mean revision is significantly different from zero.

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   Table 4 shows the revisions between the month 3 estimates of growth in business investment and total manufacturing investment and the equivalent estimates published three years later. The table covers revised estimates of business investment and total manufacturing investment from Q3 2004 to Q2 2009.

   The revisions analysis detailed below does not include the estimates published this quarter.The estimates this quarter will be included in Q1 2013 revised estimates on 27 June 2013.

   Table 4: Revisions to month 3 estimates of growth in business investment and total manufacturing investment

   	Growth in latest revised estimate (per cent)	Revisions between the first month 3 publication and estimates three years later.
   		Average over the last five years	Average over the last five years without regard to sign (average absolute revision)
   Total business investment growth.	3.8	0.72	1.85
   Total manufacturing investment growth.	4.7	0.64	2.72

   Table source: Office for National Statistics

   Table notes:

   1. Quarterly, chained volume measure, seasonally adjusted.
   2. Using standard statistical tests, none of these revisions are statistically different from zero.

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   Spreadsheets giving revisions triangles (real time databases) of estimates for 1996, and the calculations behind the averages in both tables can be dowloaded from 'Download data in this release'. 

6. Relevant links

   British Nuclear Fuels plc (BNFL)

   In April 2005 nuclear reactors were transferred from British Nuclear Fuels plc (BNFL) to the Nuclear Decommissioning Authority (NDA). BNFL is classified as a public corporation in National Accounts and the NDA as a central government body. The capital formation estimates in this release reflect this transfer from the public corporations manufacturing category. The value of the transfer was -£15.6 billion. The negative value reflects the fact that the reactors are at the end of their productive lives and have large decommissioning and clean-up liabilities. A more detailed explanation about the transfer can be found in the December 2006 Business Investment release. (414.3 Kb Pdf)

   International Business Investment comparisons

   International Business Investment comparisons are not available on a like for like basis as the compilation of European statistics on Business Investment differs from the data provided within this release. However European estimates of Business Investment provided by Eurostat, the European statistical office can be found on the Eurostat website.
   Business Investment in the United Kingdom accounts for approximately 55.9 per cent of Gross Fixed Capital Formation. Total Gross Fixed Capital Formation forms 14.6 per cent of GDP as seen in table 1 the latest United Kingdom National Accounts 2012
   

   Aircraft Imports

   On 1 January 2011 a change was made to the zero-rating of VAT on qualifying aircraft. More information on this can be found on the HMRC website. This may have contributed to the high level of aircraft imports for Q4 2010 and the low level of aircraft imports for Q1 2011. The level of investment can be seen within private sector, non-manufacturing other services on reference table 1, and subsequently transport and communication on reference table 6.

7. Publication policy

   Details of the policy governing the release of new data are available from the Media Relations Office. Also available A list of the names of those given pre-publication access (40.3 Kb Pdf) to the contents of this bulletin is also available.

8. Accessing data

   The business investment statistical bulletin and time series datasets are available to download free from the National Statistics website at 9.30am on the day of publication.
   

   The business investment statistical bulletin conforms to the standards set out in the UK Statistics Authority Code of Practice.

   Time series used in this bulletin and time series datasets carry unique identifiers for ease of use. More information on these identifiers are available in the article published on 25 August 2011, 'New series identifiers for GDP(O), IoS and IoP and GCF'. (35.4 Kb Pdf)

9. Next publication: Wednesday 27 March 2013. 
   Issued by: Office for National Statistics, Government Buildings, Cardiff Road, Newport NP10 8XG

   Website www.statistics.gov.uk
   Twitter  www.twitter.com/statisticsONS
   

10. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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