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Credit market crunch hitting company investments; INVESTMENT.

The crisis in credit markets appears to be taking its toll on the willingness of companies to invest, official figures suggested yesterday.

The office for National Statistics said business investment in the first three months of 2008 was down 1.4 Percent.

That was the worst performance since the fourth quarter of 2004, when it tumbled 1.5 Percent.

On an annual basis, business investment was, however, still 3.7 Percent higher.

Howard Archer, chief UK and European economist at Global Insight, said the weakness was widespread, with marked quarter-onquarter falls in investment in manufacturing (4.9 Percent) and construction (10.1 Percent), and only a flat performance in the services sector.

He said: "The factors supporting business investment through 2006 and 2007 are now waning markedly, and this is being compounded by tighter credit conditions.

"Specifically, business investment was supported by extended robust final demand through 2006 and most of 2007, generally high business confidence, increased capacity pressures in a number of sectors, strong corporate balance sheets and elevated profitability. In addition, tighter credit conditions only had a very limited impact on investment late on in 2007.

"Business investment seems set to be markedly weaker in 2008 in the face of tight lending conditions, softer final demand, weakening profitability and lower business confidence reflecting heightened concerns and uncertainties over the economic outlook.

"In addition, the downturns in the commercial property sector and the housing market are likely to weigh down heavily on construction investment.

"Indeed, survey evidence indicates that business investment plans are currently being pared significantly. For example, the May report from the Bank of England's regional agents revealed that investment intentions 'fell again in April, having decreased sharply over the past six months'. The regional agents also reported that 'while investment intentions had been easing since April 2007, the recent sharp slowdown was attributed to uncertainty about growth prospects and, increasingly, tighter credit conditions'.

"We suspect that substantially softer business investment will be a significant factor causing UK GDP growth to slow markedly to just 1.6 Percent in 2008 from three Percent in 2007."
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:May 23, 2008
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