1. Main points

  • Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 1.1% to £84.0 billion in Quarter 4 (Oct to Dec) 2017 from £83.1 billion in Quarter 3 (July to Sept) 2017.

  • Business investment was estimated to have been broadly unchanged from Quarter 3 2017, remaining at £46.0 billion.

  • Between Quarter 4 2016 and Quarter 4 2017, GFCF was estimated to have increased by 3.8% from £80.9 billion; business investment was estimated to have increased by 2.1% from £45.0 billion.

  • Between 2016 and 2017, GFCF grew by 3.9%; business investment grew by 2.2%.

  • The assets that contributed to the 1.1% GFCF increase between Quarter 3 2017 and Quarter 4 2017 were intellectual property products, transport equipment and dwellings.

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

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2. Upcoming changes

A change was made in UK National Accounts: the Blue Book 2017 to correct the estimation of elements of purchased software, which were being double-counted from 2001 onwards along with discrepancies in the modelled data prior to 2001. During further quality assurance, we have identified that 2017 adjustment did not fully address the issue and an additional amendment to other machinery and equipment, and information and communication technology (ICT) equipment is required. Purchased software will be unaffected by this additional amendment. When implemented in the Blue Book 2018-consistent Quarterly National Accounts dataset, to be published 29 June 2018, it will increase the level of gross fixed capital formation (GFCF) across the period by around 1.5% per year in current prices. The average impact on quarter-on-quarter GFCF current price growth is positive 0.01% and the average impact on quarter-on-quarter gross domestic product (GDP) current price growth is 0.00%. We do not yet know the definitive impact on the chained volume measures of GFCF or GDP growth rates, we expect them, though, to be similarly small.

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3. 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 Quarter 3 (July to Sept) revised release, all revised releases will contain a short section of international comparison. The provisional release will not include this international section. For a comprehensive comparison of GFCF, please refer to An international comparison of gross fixed capital formation published in November 2017.

The Business investment QMI was recently updated on 30 January 2018, and includes updated information on the quality and methodology used in the production of business investment statistics.

The Office for Budget Responsibility was granted exceptional pre-release access to this statistical bulletin at 9:30am on Tuesday 20 February 2018 so that they could prepare forecasts for the Spring Statement to be published on 13 March 2018. Correspondence between ourselves and the Office for Budget Responsibility is available.

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4. GFCF and business investment main figures

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

Between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017, gross fixed capital formation (GFCF) increased by 1.1%. On a sector basis, the largest growth was seen in general government, which contributed 0.9 percentage points, along with a slightly smaller contribution from private sector dwellings of 0.3 percentage points (Figure 1). This growth was slightly offset by a negative contribution of 0.1 percentage points from public corporations’ dwellings.

Between Quarter 4 2016 and Quarter 4 2017, GFCF increased by 3.8%. The increases came from general government, private sector dwellings and business investment, which contributed 1.4, 1.2 and 1.2 percentage points respectively to overall GFCF growth.

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6. Which assets are contributing to growth in GFCF in Quarter 4 2017?

On an asset basis, the largest contributor to growth in gross fixed capital formation (GFCF) between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017 was intellectual property products (IPP), which contributed 0.7 percentage points (Figure 2). Transport equipment along with dwellings contributed 0.4 and 0.2 percentage points to growth respectively. This growth was slightly offset by negative contributions from other buildings and structures and transfer costs, and information and communication technology (ICT) equipment and other machinery and equipment, which contributed negative 0.2 and negative 0.1 percentage points respectively.

The Quarter 4 2017 quarter on same quarter a year ago GFCF increase of 3.8% saw a positive contribution from IPP, which contributed 1.4 percentage points. Other buildings and structures and transfer costs, along with dwellings each contributed 1.1 percentage points to growth, while ICT equipment and other machinery and equipment contributed 1.0 percentage point. The only negative contribution came from transport equipment, which contributed negative 0.9 percentage points. 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. What are the contributions to annual growth in GFCF?

For the calendar year of 2017, gross fixed capital formation (GFCF) increased by 3.9%, up from the 1.8% increase for the calendar year of 2016. Total GFCF growth had been slowing since 2014. The 3.9% growth in GFCF represents the strongest annual growth since 2014. Business investment grew by 2.2% in 2017 following growth of negative 0.5% in 2016. Between 2010 and 2015, business investment averaged growth of 4.9% per year, with a maximum growth of 7.3% in 2012.

In 2017, on a sector basis, the largest contributor to annual growth was private sector dwellings, which contributed 1.6 percentage points to growth. Business investment contributed 1.2 percentage points to growth, with smaller positive contributions from the remaining sectors (Figure 3).

Other buildings and structures and transfer costs was the asset that contributed most to growth in 2017, contributing 2.0 percentage points. Dwellings was the next strongest contributor, contributing 1.7 percentage points, with smaller positive contributions from intellectual property products, and information and communication technology (ICT) equipment and other machinery and equipment.

The only negative contribution to growth came from transport equipment. Expenditure on transport equipment declined by 7.1% in 2017, following large increases in each of the previous three years. This led to a negative contribution of 0.6 percentage points to growth in 2017 (Figure 4).

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8. How has GFCF performed over a longer period?

Gross fixed capital formation (GFCF) is now 11.5% above the pre-economic downturn peak of Quarter 1 (Jan to Mar) 2008 and 35.8% 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 nine quarters, with the last negative quarter-on-quarter growth being recorded in Quarter 3 (July to Sept) 2015 (Figure 5). Since Quarter 1 2016, quarter-on-quarter GFCF growth has averaged 1.0%, with the largest increase being 2.0% and the smallest increase being 0.7%.

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9. 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 0.7% in the three months to December 2017, but grew in the month-on-month series by 1.6% in December 2017 (see Construction output in Great Britain: December 2017 for more information). Construction output “remains at a relatively high level” following a peak in March 2017.

The largest positive contributor to construction in Quarter 4 (Oct to Dec) 2017 was private housing. This is reflected in the increase in private sector dwellings series for gross fixed capital formation (GFCF) for both quarter-on-quarter growth and annual growth.

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

For the calendar year of 2017, business investment grew by 2.2%. The last negative quarter-on-quarter value was in Quarter 4 (Oct to Dec) 2016. Business investment growth has been relatively subdued for more than two years, with its Quarter 4 2017 level being just 0.6% higher than the level seen in Quarter 2 (Apr to June) 2015 (Figure 6).

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11. Business investment in the wider economy

The Bank of England, in its most recent Agents’ summary of business conditions (PDF, 479KB), stated that investment intentions had “remained positive”, however, it is noted that these intentions are mainly the investment needed to maintain business activity and improve efficiency. The Bank of England states that strength in global demand and growth should encourage exporters to invest in additional capacity.

The Bank also notes that a range of different indicators suggests that Brexit-related uncertainties and expectations around lower future sales are weighing on business investment growth. From a survey source, it was found that nominal business investment was 3 to 4% lower in the year to June 2017 than it would have otherwise been. For a more comprehensive analysis around Brexit and business investment, please see page 17 of the Bank of England’s latest inflation report.

Another important factor to consider when looking at business investment is the availability or supply of credit. Although the increase in Bank Rate has pushed up the cost of borrowing, the cost of borrowing to firms remains low. The Credit Conditions survey, however, reported a fall in demand for lending across firms of all sizes in the second half of 2017.

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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) 2017 to Quarter 3 (July to Sept) 2017 in line with National Accounts Revisions Policy (PDF, 41KB). When actual data for full year calendar years are available, this can cause revisions to seasonal adjustment and this was the case with the first three quarters of 2017.

The majority of revisions are caused by taking on revised source data for 2017. The maximum revision to GFCF is an upwards revision of 0.4% seen in Quarter 3 (July to Sept) 2017, while the average revision to GFCF is 0.3% (Figure 7).

Revisions in business investment (Figure 8) are due to the incorporation of later data. The maximum revision to business investment is an upwards revision of 0.4%, which was seen in Quarter 3 2017. This is alongside one slightly downwards revision in Quarter 1 2017 of 0.1%. The absolute average revision across the period is 0.2%, while the mean revision is 0.1%.

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14. 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. We recently updated the Business investment QMI on 30 January 2018.

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 provisional release is £0.9 billion.

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 4 (Oct to Dec) 2017 provisional survey results.

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