Saturday, 16 May 2009

UK investment crashes

In any recession, investment is one of the first casualties. When economic prospects darken firms cut back on their expansion projects and reduce expenditures on capital equipment.

During the last two quarters of 2008, UK investment levels nosedived. The chart above illustrates this collapse by breaking down UK investment numbers into its three main compoments; government; housing and business.

Before the credit crunch, it was the business sector leading the way. In the chart, business investment is denoted by those beautiful yellow bars that sit above the zero axis. By the beginning half of 2008, business investment had stalled, and by the end of the year, investment expenditure was falling.

The decline in housing investment happened earlier. It had effectively stalled as soon as the credit cruch hit in the third quarter of 2007. However, even before NRK failed, investment levels were falling; further proof that the housing market was in trouble long before the current financial crisis began,

Currently, only the public sector is increasing investment expenditure. However, the amounts concerned are comparatively small. This raises an interesting observation about those huge fiscal deficits. The increase in government expenditure is not focused upon building up the UK pubic sector capital stock. The deficit is being driven by expenditure on new hospitals and road. Rather it is on current expenditure; wages, state benefits and MPs housing allowances.

As the investment data so cruelly points out, all those New Labour financial sector bailouts and guarantees have failed miserably. Investment has crashed, particularly in the private sector. It hasn't even helped that sector most beloved of goverment ministers and MPs - housing.

1 comment:

Man in a Shed said...

Does anyone have a definitive definition of "public sector investment expenditure" and why it differs from just spending, capital or otherwise ?

As you hint Alice the suspicion has to be on salaries and "Diversity community engagement officers" and "Digital communication managers" who buy the Guardian, vote Labour and cost us up to £100k+/yr.