1. Main points

  • Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 0.3% to £82.3 billion in Quarter 3 (July to Sept) 2017 from £82.1 billion in Quarter 2 (Apr to June) 2017.

  • Business investment was estimated to have increased by 0.5% to £45.9 billion in Quarter 3 2017 from £45.6 billion in Quarter 2 2017.

  • Between Quarter 3 2016 and Quarter 3 2017, GFCF was estimated to have increased by 2.4% from £80.4 billion; business investment was estimated to have increased by 1.7% from £45.1 billion.

  • The assets that contributed to the 0.3% GFCF increase between Quarter 2 2017 and Quarter 3 2017 were dwellings, intellectual property products, and other buildings and structures and transfer costs.

  • The sectors that contributed to GFCF growth over the same period were private sector dwellings and business investment.

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2. Things you need to know about this release

The estimates in this release are short-term indicators of investment in non-financial assets in the UK, such as dwellings (residential buildings), transport equipment (planes, trains and automobiles), machinery (electrical equipment), buildings (non-residential buildings and roads) and intellectual property products (assets without physical properties – formerly known as intangibles). This release covers not only business investment, but asset and sector breakdowns of total gross fixed capital formation (GFCF), of which business investment is one component.

Business investment is net investment by private and public corporations. These include investments in transport, information and communication technology (ICT) equipment, other machinery and equipment, cultivated assets (such as livestock and vineyards), intellectual property products (IPP, which includes investment in software, research and development, artistic originals and mineral exploration), and other buildings and structures.

Business investment does not include investment by central or local government, investment in dwellings, or the costs associated with the transfer of non-produced assets (such as land). Business investment is not an internationally recognised concept and it should not be used to make international comparisons, however, GFCF is an internationally recognised standard and is therefore internationally comparable. Please see A short guide to GFCF and business investment for more detailed information, including asset and sector hierarchies.

All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures. To see a time series of the data please use our time series datasets.

As announced in the provisional release, this bulletin contains a brief international comparison of GFCF in section 7. This will be included in each revised release from now on. For a more comprehensive comparison of GFCF, please see An international comparison of gross fixed capital formation.

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3. GFCF and business investment main figures

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4. Which sectors are contributing to growth in GFCF in Quarter 3 2017?

Between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017, gross fixed capital formation (GFCF) increased by 0.3%. On a sector basis, private sector dwellings contributed 0.5 percentage points to overall GFCF growth, along with a slightly smaller contribution from business investment of 0.3 percentage points (Figure 1). The largest negative contributors to GFCF growth were private sector transfer costs and general government, which each contributed negative 0.2 percentage points over the same period.

Between Quarter 3 2016 and Quarter 3 2017, GFCF increased by 2.4%. The largest increases came from private sector dwellings and business investment, which contributed 1.4 and 1.0 percentage points respectively to overall GFCF growth. Smaller positive contributions came from public corporations’ dwellings and general government. Transfer costs for both public corporations and the private sector were the only sectors that contributed negatively to GFCF growth for the same period.

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5. Which assets are contributing to growth in GFCF in Quarter 3 2017?

On an asset basis, the largest contributor to growth in gross fixed capital formation (GFCF) between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017 was dwellings, which contributed 0.5 percentage points (Figure 2). Intellectual property products (IPP) along with other buildings and structures and transfer costs each contributed 0.3 percentage points to growth. This was partially offset by negative contributions from transport equipment, and information and communication technology (ICT) equipment and other machinery and equipment, which contributed negative 0.5 and negative 0.3 percentage points respectively.

The Quarter 3 2017 quarter on same quarter a year ago GFCF increase of 2.4% saw positive contributions from dwellings, other buildings and structures and transfer costs, ICT equipment and other machinery and equipment, and IPP. The only negative contribution came from transport equipment, which contributed negative 1.4 percentage points. This is due to particularly strong investment in transport seen in Quarter 3 2016.

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6. How has GFCF performed over a longer period?

Gross fixed capital formation (GFCF) is now 9.3% above the pre-economic downturn peak of Quarter 1 (Jan to Mar) 2008 and 33.1% above the level seen at the trough of the financial crisis in Quarter 2 (Apr to June) 2009.

GFCF has grown positively for the last eight quarters, with the last negative quarter-on-quarter growth being recorded in Quarter 3 (July to Sept) 2015 (Figure 3). The quarter-on-quarter growth in GFCF averaged 1.0% between Quarter 4 (Oct to Dec) 2015 and Quarter 3 2016, but has since fallen to an average of 0.6% from Quarter 4 2016 to Quarter 3 2017.

For the calendar year of 2016, GFCF increased by 1.8%, the weakest growth for a calendar year since 2009. Total GFCF growth has been slowing since 2014. Quarter on same quarter a year ago growth averaged 7.2% in 2014, fell to 2.8% in 2015 and then fell further to 1.8% for 2016.

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7. International comparisons of GFCF

In Quarter 3 (July to Sept) 2017, all G7 economies increased their level of gross fixed capital formation (GFCF) expenditure. The largest quarter-on-quarter growth was seen in Italy, where GFCF expenditure increased by 3.0% compared with Quarter 2 (Apr to June) 2017. The smallest increase of all G7 nations was seen in Japan, where growth was just 0.1%. Growth of 0.3% in GFCF for the UK in Quarter 3 2017 represents slower growth than Canada (0.9%), France (0.9%), Germany (0.4%) and Italy (3.0%). The United States, however, has a similar level of GFCF growth of 0.3% (Figure 4).

On a more historical basis, between Quarter 1 (Jan to Mar) 2008 and Quarter 2 2009, gross fixed capital formation (GFCF) in the UK decreased by 18.0%, in chained volume measures, which represented the sharpest peak-to-trough decline of any G7 nation between 2008 and 2009.

The first country to recover to its Quarter 1 2008 level was Canada, 12 quarters after GFCF first began to fall. In contrast, it took the UK more than six years (25 quarters) to recover to its pre-downturn level of GFCF. The level of GFCF in Quarter 3 2017 represents a 7.6% increase since Quarter 1 2008. For a more detailed international comparison, please see An international comparison of gross fixed capital formation.

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8. What other information can tell us more about GFCF?

Developments in the housing market can be an important indicator of investment and wider activity in the economy. Construction fell by 0.9% in the three months to June 2017 but “remains at relatively high levels” (see Construction output in Great Britain: September 2017 for more information). This is driven mainly by a decrease in repair and maintenance, which fell by 1.4%, and all new work, which fell by 0.7%. However, both public and private new housing have increased across the period, which is reflected in the 0.7% increase in dwellings’ gross fixed capital formation (GFCF).

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9. How has business investment performed over a longer period?

Business investment has continued to grow positively in 2017 after seeing a slightly more mixed picture in 2016 (Figure 5). Business investment in 2016 saw two consecutive quarters of positive growth in Quarter 2 (Apr to June) (0.7%) and Quarter 3 (July to Sept) (1.3%) and two quarters of slightly negative growth in Quarter 1 (Jan to Mar) (0.0%) and Quarter 4 (Oct to Dec) (negative 0.1%).

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10. Asset contributions to business investment for Quarter 3 2017

The assets that contributed positively to business investment between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017 were other buildings and structures, and intellectual property products (IPP). These two assets contributed 1.1 and 0.6 percentage points to growth respectively. These increases, however, were partially offset by a contribution from transport equipment of negative 0.9 percentage points and a contribution of negative 0.3 percentage points from information and communication technology (ICT) equipment and other machinery and equipment, which left business investment growing by 0.5% (Figure 6).

Business investment grew by 1.7% when compared with Quarter 3 2016. Other buildings and structures was the largest contributor to growth, at 2.4 percentage points. The other large contributor to growth was IPP, which contributed 1.3 percentage points. The biggest negative contributor to business investment growth was transport equipment, which contributed negative 2.5 percentage points to overall growth. This was due to particularly strong data seen in Quarter 3 2016.

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11. Business investment in the wider economy

The Bank of England, in its most recent Agents’ summary of business conditions, stated that investment intentions had “softened somewhat in services”. This is in response to a perceived subdued outlook for consumer demand. It is also noted that depreciation in sterling had begun to encourage a modest rebalancing towards exports, supporting business investment. However, future trading relationship uncertainties “continued to deter investment for some firms”. In its most recent inflation report, the Bank of England also states that sterling’s depreciation is likely to increase the cost of investment for most firms, as investment is relatively import intensive.

Another important factor to consider when looking at business investment is the availability or supply of credit. In the most recent Bank of England Credit Conditions Review, the supply of credit to firms “remains favourable”, however, the report does note that there are some signs that it may have tightened slightly in the past few months for small firms. The availability of credit to corporate firms was found to be broadly unchanged over the past two quarters, with no change expected for Quarter 4 (Oct to Dec) 2017.

Corporate demand for credit was found to be “somewhat subdued across firms of all sizes”. It is then noted to have changed little over the past six months, however, lenders reported weaker demand for credit in Quarter 3 (July to Sept) 2017 and demand for finance has remained “muted” in recent months.

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12. Revisions to GFCF and business investment

Revisions have been made to gross fixed capital formation (GFCF) from Quarter 1 (Jan to Mar) 2016 to Quarter 3 (July to Sept) 2017 in line with national accounts revisions policy (PDF, 42KB). The majority of revisions are caused by taking on revised source data for 2016 and 2017. The maximum revision is an upwards revision of 0.4% seen in Quarter 2 (Apr to June) 2017, while the average revision to GFCF growth is 0.2% (Figure 7). A small part of the revisions to the dwellings series is due to the use of updated construction data, which now incorporate VAT data.

Business investment revisions (Figure 8) are due to the incorporation of later data. The largest contributor to revisions to business investment was other buildings and structures, along with a smaller contribution from information and communication technology (ICT) equipment and other machinery and equipment.

The maximum revision is an upwards revision of 0.3%, which was seen in Quarter 3 2017. This is alongside two slightly downwards revisions in Quarter 2 2016 and Quarter 3 2016 of 0.2% and 0.1% respectively. The absolute average revision across the period is 0.1%, while the mean revision is 0.0%. The differing profiles of the revisions to GFCF and business investment in Quarter 2 2016 and Quarter 3 2016 are due to changes in government data, which is excluded from business investment.

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13. Quality and methodology

The Business investment Quality and Methodology Information (QMI) report contains important information on:

  • the strengths and limitations of the data and how it compares with related data

  • uses and users

  • how the output was created

  • the quality of the output including the accuracy of the data

The changes signposted in this bulletin have not yet been reflected in either the Quarterly Acquisitions and Disposals of Capital Assets Survey QMI or the Business investment QMI, but changes will be incorporated into revised QMIs in the future.

In February 2017, we introduced an improved gross fixed capital formation (GFCF) estimation system, which incorporated methodological changes including improved deflation and seasonal adjustment. A data impact assessment of the new GFCF system for the periods Quarter 1 (Jan to Mar) 2016 to Quarter 3 (July to Sept) 2016 can be found in an accompanying article: Gross fixed capital formation (GFCF) new system deployment and data impact assessment. Further information on the methods changes introduced in the new GFCF estimation system can be found in the article Changes to the Gross Fixed Capital Formation methodology and processing.

Adjustments

Large capital expenditure tends to be reported later in the data collection period than smaller capital expenditure. This means that larger expenditures are often included in the revised (month 3) results, but are not reported in time for the provisional (month 2) results, leading to a tendency towards upwards revisions in the later estimates for business investment and gross fixed capital formation (GFCF). Following investigation of the impact of this effect, from Quarter 3 (July to Sept) 2013, in the provisional estimate a bias adjustment is introduced to business investment and its components. The bias adjustment for this quarter has been entirely removed as normal for a revised release.

Survey response rates

Table 2 presents the provisional (month 2) and revised (month 3) response rates for the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). The estimates in this release are based on the Quarter 3 (July to Sept) 2017 revised survey results.

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