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Statistical bulletin: Business Investment, Quarter 3 (July to Sept) 2015 Provisional Results This product is designated as National Statistics

Released: 27 November 2015 Download PDF

Main points

  • These estimates are short-term indicators of investment in assets, such as dwellings, transport equipment, machinery, buildings and intangible assets. This release covers asset breakdowns of total gross fixed capital formation (GFCF), of which business investment is one component.
  • All investment data referred to are estimates of seasonally adjusted chained volume measures.
  • In Quarter 3 (July to Sept) 2015, GFCF was estimated to have increased by £1.0 billion (1.3%), compared with the previous quarter, to £77.3 billion. This is the highest level since Quarter 4 (Oct to Dec) 2007.
  • In Quarter 3 (July to Sept) 2015, business investment was estimated to have increased by £0.9 billion (2.2%), compared with the previous quarter, to £44.4 billion.
  • In Quarter 3 (July to Sept) 2015, GFCF was estimated to have increased by 3.4% compared with Quarter 3 (July to Sept) 2014.
  • In Quarter 3 (July to Sept) 2015, business investment increased by 6.6% compared with Quarter 3 (July to Sept) 2014.
  • There are no revisions to previous quarters in this release.

About this release

The estimates in this release are short-term indicators of investment in non-financial assets in the UK, such as dwellings, transport equipment, machinery, buildings and intellectual property products. 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, technology and communications (ICT) equipment

  • other machinery and equipment

  • cultivated assets

  • intellectual property products (IPP, which includes investment in software, research and development, artistic originals and mineral exploration)

  • buildings and other structures

It 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). A full sector and asset hierarchy can be found in the background notes. Note that business investment is not an internationally recognised concept and therefore it should not be used to make international comparisons. 

All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures.

Changes to the Quarterly Survey of Capital Expenditure and methodological information

Changes to the Quarterly Survey of Capital Expenditure in Quarter 1 (Jan to Mar) 2015

As described in the Business Investment, Quarter 4 (Oct to Dec) 2014 Revised Results bulletin and in Changes to the Annual Business Survey, the Quarterly Survey of Capital Expenditure and the Survey into Business Spending on Capital Items, in 2015 (114.3 Kb Pdf) , we moved to the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) from the Quarterly Survey of Capital Expenditure (CAPEX). The main reason is to move to the updated European System of Accounts (ESA) 2010 manual, the international guidance for national accounts.

The main changes to the survey are:

  • adding new questions to improve the quality of our estimates and to meet the latest European legislation requirements (ESA 2010)

  • removing the lower limit of £500 for the value of reported assets, so all relevant assets (even those below businesses’ Asset Register threshold) can be reported

  • including small tools used in production in the definition of GFCF

  • improving the questionnaire’s layout, including new sections and headings, to make completing the questionnaire easier 

The data from the new questions will not be included in estimates of GFCF and its components until 2017, when there will be 2 years of data available for quality assurance.

Further methodological information including changes to the UK National Accounts

Estimates in this release have been compiled under ESA 2010 concepts and definitions, in compliance with the UK’s legal obligations in producing the National Accounts. Articles are available describing the methodology used to estimate GFCF and the impact of the changes implemented for ESA10 in September 2014.

On 19 May 2015 we published several articles explaining the changes that were implemented in the UK National Accounts (Blue Book) 2015, published 30 October 2015. These articles describe changes related to ongoing work to meet ESA 1995 requirements. These include changes that impact GFCF and its components, specifically spending on repairs and maintenance of dwellings and exhaustiveness. There is a comprehensive list of all published articles relating to changes to the UK National Accounts (Blue Book).

Forecast data

Not all data required for the compilation of GFCF and its components are available for the latest period at the time of publication. For these components, the latest period is forecast. In this release this includes government investment, investment in new dwellings and improvements to dwellings, investment in research and development, and investment in artistic originals.

Revisions

No periods have been revised in this release.

Gross fixed capital formation and business investment

Figure 1: Annual gross fixed capital formation chained volume measures

Reference year: 2012, Coverage: UK

Figure 1: Annual gross fixed capital formation chained volume measures

Notes:

  1. The data in this chart covers 1998 to 2014.
  2. The title and reference year have been amended (8 December 2015, 9:40 am)

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Figure 2: Quarterly gross fixed capital formation chained volume measures, seasonally adjusted

Reference year: 2012, Coverage: UK

Figure 2: Quarterly gross fixed capital formation chained volume measures, seasonally adjusted

Notes:

  1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)
  2. The data in this chart covers Quarter 3 (July to Sept) 1997 to Quarter 3 (July to Sept) 2015
  3. The title and reference year have been amended (8 December 2015, 9:40 am)

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Figure 3: Annual business investment chained volume measures

Reference year: 2012, Coverage: UK

Figure 3: Annual business investment chained volume measures

Notes:

  1. The data in this chart covers 1998 to 2014
  2. The title and reference year have been amended (8 December 2015, 9:40 am)

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Figure 4: Quarterly business investment chained volume measures, seasonally adjusted

Reference year: 2012, Coverage: UK

Figure 4: Quarterly business investment chained volume measures, seasonally adjusted

Notes:

  1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)
  2. The data in this chart covers Quarter 3 (July to Sept) 1997 to Quarter 3 (July to Sept) 2015
  3. The title and reference year have been amended (8 December 2015, 9:40 am)

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Figure 4 shows a large spike in business investment in Quarter 2 (Apr to June) 2005. This is due to the transfer of British Nuclear Fuels Ltd (BNFL). In April 2005, nuclear reactors were transferred from BNFL to the Nuclear Decommissioning Authority (NDA). BNFL is classified as a public corporation in National Accounts, while the NDA is a central government body. The business investment series includes investment by public corporations, but not government spending, the positive spike reflects the £15.6 billion transfer. More information on the transfer of BNFL can be found in section 3 of the background notes.

Summary tables

In Quarter 3 (July to Sept) 2015 total gross fixed capital formation increased by an estimated £1.0 billion (1.3%) compared with the previous quarter. Business investment saw an increase of 2.2%, rising by an estimated £0.9 billion.  Additionally, general government saw an increase of 4.5%, rising by an estimated £0.6 billion. These increases were partially offset by a decrease in private sector cost of ownership transfer on non-produced assets of an estimated £0.6 billion (12.1%).

Table 1a: Total gross fixed capital formation in the UK by institutional sector, Quarter 3 (July to Sept) 2015

  % change % change £ million £ million
  Most recent quarter on previous quarter Most recent quarter on a year earlier Most recent level ** Level change from previous quarter
Gross fixed capital formation 1.3 3.4 77,322 1,007
Business investment 2.2 6.6 44,423 945
General government 4.5 5.2 12,776 556
Public corporations dwellings 2.7 9.0 960 25
Public corporations cost of ownership 0.9 -28.9 -113 -1
transfer on non-produced assets        
Private sector dwellings 0.6 -1.9 14,871 91
Private sector cost of ownership -12.1 -13.5 4,405 -609
transfer on non-produced assets        

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In Quarter 3 (July to Sept) 2015, other buildings and structures and transfer costs saw the largest level increase rising by an estimated £1.2 billion (5.1%). Dwellings saw the second highest level increase of an estimated £0.5 billion (3.3%). These increases were partially offset by a decrease in intellectual property products of an estimated £0.7 billion (4.1%).

Table 1b: Total gross fixed capital formation in the UK by asset, Quarter 3 (July to Sept) 2015

  % change % change £ million £ million
  Most recent quarter on previous quarter Most recent quarter on a year earlier Most recent level ** Level change from previous quarter
Gross fixed capital formation 1.3 3.4 77,322 1,007
Transport equipment -9.4 0.3 2,930 -304
ICT equipment and other machinery and equipment 2.0 7.5 16,590 320
Dwellings 3.3 -0.3 16,037 517
Other buildings and structures and transfer costs  5.1 2.9 24,733 1,210
Intellectual property products -4.1 4.4 17,032 -736

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Economic background

Business investment grew by 2.2% in Quarter 3 (July to Sept) 2015, a 0.6 percentage point increase in the growth rate from the previous quarter. Supported by this stronger growth in business investment, the rate of increase in Gross Fixed Capital Formation (GFCF) also picked up to 1.3% in Quarter 3 (July to Sept) 2015.

This was the fourth consecutive quarter of positive growth in business investment, with the level of investment now 6.6% higher than in the third quarter (July to Sept) of 2014. As the largest component of GFCF, the increase in business investment contributed 1.2 of the 1.3 percentage points (pp) of total quarterly growth. The increase in business investment in Quarter 3 (July to Sept) coincided with an easing in corporate financing conditions, with the cost of borrowing still low as a result of historically low interest rates. These developments have been highlighted in the Bank of England’s November Inflation Report, which also noted that businesses’ investment intentions continue to indicate robust rates of investment growth in the near term.

Growth in investment was also seen in the general government sector, which saw a 4.5% quarterly rate of increase and a 0.7pp contribution to total GFCF growth. However, the growth in business and government investment was partially offset by a 2.6% fall in “other” private sector investment1.

By asset class, the main contributors to the growth in overall GFCF were investment in other buildings and structures and transfer costs, and investment in dwellings, which grew by 5.1% and 3.3% respectively. This increase in investment has coincided with a shortage of supply in the real estate market, which has supported price growth. The Bank of England’s Agents’ Summary of Business Conditions for Q3 reported that shortages of commercial property had put upward pressure on prices. Similarly, the ONS House Price Index continues to show robust house price growth, reflecting a mismatch between supply and demand. With returns on savings so low, the strong price growth in real estate markets could be stimulating an increase in investment in buildings and houses.

ICT equipment and other machinery assets also saw an increase in investment in Quarter 3 (July to Sept) 2015, while falls in intellectual property product investment and transport equipment investment acted as a drag on GFCF growth.

The strong performance in business investment over recent quarters reflects positive outturns from a range of broader economic indicators. Low inflation and an improvement in labour market outcomes has continued to strengthen household real incomes, and coupled with sustained economic growth have helped drive the recovery in domestic demand. This recovery, combined with the increasing capacity constraints highlighted in the October Economic Review, is likely to have supported the recent investment growth.

Notes for Economic background

  1. “Other” private sector investment includes investment in private sector “dwellings” and private sector “costs on ownership transfer of non-produced assets”.

Where to find more of our data

We also publish additional analyses of GFCF, business investment, and the Quarterly Acquisitions and Disposals of Capital Assets Survey, which have been created in response to ad hoc user requests. Enquiries about ad hoc requests may be made to gcf@ons.gsi.gov.uk.

Adjustments, revisions and response rates

Adjustments

Large capital expenditure tends to be reported later in the data collection period than smaller 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 GFCF. Following investigation of the impact of this effect, from Quarter 3 (July to Sept) 2013, a bias adjustment was introduced to GFCF and its components in the provisional estimate.

A bias adjustment of £0.5 billion for Quarter 3 (July to Sept) 2015 has been included in this release. This adjustment will be reassessed in the revised results when the survey response rates improve. Users should note that the bias adjustment is a best estimate of the QCAS and the estimate may still be revised either up or down. Therefore, GFCF and business investment will be subject to revision in the Quarter 3 (July to Sept) 2015 revised (month 3) release. The bias adjustment is intended to reduce the average size of revisions over time. It is not possible to ascertain the direction of any such revisions.

The Quarterly Survey of Capital Expenditure was improved by adding clearer instructions. As detailed in the provisional Quarter 1 (Jan to Mar) 2015 Business Investment release, feedback from some respondents indicated that they had been misreporting their asset breakdown and were correcting this on the new questionnaire. We found that some respondents were reporting new construction work (NCW) as other capital equipment (OCE). From Quarter 1 (Jan to Mar) 2015 respondents to the survey are now reporting more in new construction work at the expense of other capital equipment. In order to remain consistent with the previous data, we have made some adjustments to the assets in the current price series in Quarter 3 (July to Sept) 2015, quality adjustments on asset buildings (-£2.1 billion) and other machinery (+£2.1 billion). These adjustments will be reviewed as the survey response increases.

Survey response rates

Table 2 presents the provisional (month 2) 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) 2015 month 2 (provisional) survey results.

Table 2: UK response rates for quarterly acquisitions and disposals of capital assets survey, Quarter 3 (July to Sept) 2014 to Quarter 3 (July to Sept) 2015

At month 2 (Provisional) At month 3 (Revised)
Period Survey response rates / % Period Survey response rates / %
2014 Q3 78.7 2014 Q3 91.7
  Q4 80.1   Q4 94.4
           
2015 Q1 67.3 2015 Q1 88.8
  Q2 70.8   Q2 81.4
  Q3 72.1      

Table notes:

  1. Q1 = Quarter 1 (January to March), Q2 = Quarter 2 (April to June), Q3 = Quarter 3 (July to September), Q4 = Quarter 4 (October to December)

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Background notes

  1. Understanding the data

    Short guide to business investment

    Gross fixed capital formation (GFCF) is used in the compilation of the UK National Accounts’ expenditure measure of the Second Estimate of Gross Domestic Product (GDP) at month 2 and the Quarterly National Accounts (QNA) at each calendar quarter. It is an estimate of net capital expenditure by both the public and private sectors. Examples of capital expenditure include spending on machinery and plant, transport equipment, software, new dwellings and other buildings, and major improvements to existing buildings and structures, such as roads. The additional assets research and development and military weapons systems were introduced in the Quarter 2 (Apr to June) 2014 Revised Results release, published November 2014, consistent with the European System of Accounts 2010, and with the UK Annual National Accounts (Blue Book) 2014.

    Business investment estimates are a short term indicator of net capital expenditure by businesses within the UK, at current prices and chained volume measures, both seasonally and not seasonally adjusted. Business investment is one component of GFCF. Business investment estimates exclude expenditure on dwellings and the costs associated with the transfer of ownership of non-produced assets, and capital expenditure by local and central government.

    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, and have the effect of changes in prices removed.

    Use of the data

    Estimates from this release are used by ONS, in the compilation of the UK National Accounts, 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. In addition, these estimates are frequently used by the business, education and research communities, the media and the general public.

  2. Methods

    Details of the business investment methodology are published in the Quality and Methodology Information (128.9 Kb Pdf) . This report describes the intended uses of the estimates presented in this publication, their general quality and the methods used to produce them.

    Composition of the data

    Estimates of GFCF and business investment are produced twice each quarter: an early provisional estimate in month 2 and revised estimates in month 3. The largest component of the estimates is collected via the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS). This survey collects data on the acquisition and disposal of capital assets from the manufacturing, other production, construction, distribution and other services sectors. Other main sources for GFCF include data returned by local and central government and public corporations, data on construction, data on new dwellings and improvements to dwellings, and artistic originals. GFCF by local and central government, investment in new dwellings and the costs associated with the transfer of non-produced assets (primarily costs associated with the transfer of land and existing buildings) are excluded from the business investment estimates, but included in total GFCF. The acquisition and disposal of land and existing buildings, including dwellings, is excluded from both the business investment and GFCF estimates.

    More information about the Quarterly Survey of Capital Expenditure can be found in the Summary Quality Report for Quarterly Capital Expenditure Inquiry (287.8 Kb Pdf) .

    Definitions and explanations

    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.

    Deflation and chained volume measure (CVM)

    Investment is measured across several time periods. The values measured will include both the change in the volume of investment and the effect of the change of prices over the period. Deflation is the process whereby the effect of price change is removed from a set of values.

    Deflation can be done simply by dividing a current price estimate by a deflator, which measures the movement in prices. Doing this creates a constant price series. For deflators to accurately measure the movement in prices they need to accurately reflect changing investment habits. We do this by rebasing deflators.

    Rebasing deflators has a significant effect on a constant price series and would cause significant revisions to the investment data. To avoid this it has been the standard to not rebase deflators annually. This, however, means the deflators are not accurately measuring price changes.

    To resolve this we estimate volumes using chained volume measures, which are derived by linking together (compounding) movements in volumes; calculated using the prices of the previous financial year; and applying the movements to the current price estimates of the reference year. This allows us to remove both the effect of prices and rebasing.

    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.

    Asset and sector hierarchies

    The diagrams show the institutional and sector hierarchies for GFCF, as set out by the European System of Accounts 2010. The asset hierarchy for business investment is also set out. Business investment is not an internationally defined concept, and the UK’s estimates cannot be compared with those of other countries due to definitional differences.

    A full list of sector codes, for example S.11001 = public corporations, is available in the reference tables.

    Click on image to view a larger version.

    Click on image to view a larger version.

    Click on image to view a larger version.

  3. Further information on methodology

    Further information about the UK National Accounts and the programme of continuous improvement can be found at:

    • National Accounts methodology and articles

    • Continuous Improvement of Gross Domestic Product: Sources, Methods and Communication  

    British Nuclear Fuels Ltd (BNFL)

    In April 2005 nuclear reactors were transferred from British Nuclear Fuels Ltd (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 negative £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. This shows up as a prominent trough in Quarter 2 (Apr to June) 2005 in the general government series, and a complementary peak in Quarter 2 (Apr to June) of the business investment series, which includes investment by public corporations (except dwellings and transfer costs). A more detailed explanation about the transfer can be found in the December 2006 Business Investment release (414.3 Kb Pdf) .

    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 Quarter 4 (Oct to Dec) 2010 and the low level of aircraft imports for Quarter 1 (Jan to Mar) 2011.

  4. Other relevant sources of data

    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 UK accounts for over half of total gross fixed capital formation (GFCF).

    The GSS Business Statistics – interactive user guide is an interactive tool to help you find what business and economic statistics are available, and choose the right data for your needs.
    ONS publishes the following statistical releases, which provide complementary information on UK business and economic performance:

  5. Feedback

    We welcome your feedback on the business investment release and data. Please contact gcf@ons.gsi.gov.uk . You can also engage in discussion about business investment, and, share information with other users or producers of financial and economic statistics by visiting the Financial and Economic Statistics User Group on the Royal Statistical Society’s StatsUserNet discussion forum.

  6. Publication policy

    Details of the policy governing the release of new data are available from the Statistics Authority or from the Media Relations Office email: media.relations@ons.gsi.gov.uk. A list of the names of those given pre-publication access to the contents of this bulletin is also available.

  7. Accessing data

    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 is available in the article published on 25 August 2011 New series identifiers for GDP(O), IoS and IoP and GCF.

  8. 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 2015.

  9. Next publication:  Wednesday 23 December 2015

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  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

Statistical contacts

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Stephanie Duff +44 (0)1633 455250 Office for National Statistics gcf@ons.gsi.gov.uk
Get all the tables for this publication in the data section of this publication .
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