Business investment drop reflects corporates' cautions on market outlook

British gross domestic product (GDP) grew by 0.7 percent between the second quarter and the third quarter of 2014, unrevised from the previous estimate of GDP that published a month ago, said the Office for National Statistics (ONS) Wednesday.

But business investment surprisingly fell over the same period, data showed by ONS.

Business investment drops

The growth race in the third quarter was slower than the 0.9 percent in the second quarter, but matched the market estimation consensus. And the annual growth rate also remained at three percent as the previous estimation.

British production output rose by 0.2 percent in the third quarter of 2014 when comparing the three-month earlier. Manufacturing products increased by 0.4 percent, while construction and service industries' outputs both rose by 0.8 percent over the same period, data showed.

In expenditure term, British household expenditure in the third quarter grew by 0.8 percent when comparing the three-month earlier. Government final consumption expenditure and gross fixed capital formation increased by 1.1 percent and 1.0 percent respectively, figures showed.

Business investment, however, fell by 0.7 percent in the third quarter, substantially worse than the previous quarter's growth of 3.3 percent. Exports declined by 0.4 percent, while imports increased by 1.4 percent on quarter-on-quarter basis, data also showed.

The British statistics department releases three estimates for its quarterly GDP data.

Growing obstacles

Economists here believe the business investment drop reflects corporates' cautions on their market outlook.

Howard Archer, Chief European & UK Economist at IHS Global Insight, said in a note that the drop could be a sign that companies are adopting a more cautious approach in the face of increased global growth concerns (particularly weakness in the euro zone) and mounting political uncertainty in the UK as the 2015 general election looms.

He said: "It is important for both balanced, sustainable UK growth and for improving productivity that that business investment holds up well going forward."

Paul Hollingsworth, UK Economist at Capital Economics, commented in a note that: "Looking ahead, the economic recovery faces some growing obstacles, not least the continued weakness in the neighboring euro zone and a re-intensification of the fiscal squeeze next year."

But he added with consumer and business confidence remaining strong, wage growth picking up and the recent falls in oil prices set to provide a timely fillip to growth, the recovery of Britain should be able to maintain its momentum.

The London-based economic forecaster remains its British GDP growth estimation at three percent both in 2015 and 2016.