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Business investment showing signs of recovery

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UK business investment rose at its fastest rate in over two decades during the first three months of the year, according to official figures.

Data from the Office for National Statistics (ONS) revealed that business investment grew by 7.8 per cent in the first quarter of 2010 to reach £29.1 billion.

Analysts had been predicting it would hold steady at a 6 per cent improvement.

The year-on-year fall in business spending also slowed, down from 11 per cent to 7.7 per cent.

However, the increase must be set against the record decline that affected business spending during the recession when, at one point, it dropped by as much as 28 per cent.

Investment in the services sector improved by 11.1 per cent, but manufacturing registered a fall of 0.2 per cent.

Commenting on the figures, David Kern, chief economist at the British Chambers of Commerce (BCC), said: “They provide welcome confirmation that business investment started to recover in the first quarter of the year, following a long period of sharp declines.

“But manufacturing investment is still marginally down in the quarter, and all categories of business investment show large year on year declines.”

Mr Kern added that, while big falls in investment were unavoidable in the recession, with businesses slashing capital spending and stocks, it was important to reverse the trend in the interests of a sustainable recovery.

He said: “Unless business investment continues to grow over the medium-term, UK productivity will suffer and the economy will lack the capacity to meet rising demand as the recovery gathers momentum. To promote investment, companies need interest rates to remain low for a prolonged period.”