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Mixed economic picture after Brexit vote but business investment higher than thought

New figures have shown that business investment actually grew in the UK post the Brexit referendum contradicting an initial report.

Revised figures from the Office for National Statistics have altered the picture of the UK economy, lowering figures for economic growth but increasing the estimate of how much households are saving.

According to the changes, business investment — one of the key indicators of companies’ confidence about the future — was higher than previously thought.

The data are particularly sensitive in the wake of last year’s vote to leave the EU. Mark Carney, Governor of the Bank of England, said in August that uncertainty over Brexit was holding back both business investment and household spending.

Business investment rose 2.5% during the second quarter of 2017 compared with the same quarter in the previous year. Earlier estimates found it had not grown at all during the 12-month period. Overall investment spending, known as gross fixed capital formation, was £81.1bn in the second quarter of 2017. Business investment represented £45.7bn of this total. According to the new data, total investment rose 2.4% and business investment increased 2.5% when compared with the second quarter of 2016, after adjusting for price increases.

The data are based on the responses of business to surveys and some companies have been wrongly classifying their investments. Companies had been reporting construction work as capital products.

Correcting this has raised the amount of investment because the different categories require different inflation adjustments. The change in categorisation means that more of the money spent is counted as a real increase in investment rather than an increase in prices.

The change in the rate of investment was not enough to raise overall economic growth. In fact, the ONS lowered growth estimates in the year since the Brexit referendum, because consumer spending had not increased as fast as previously thought. But the data does mean that it is not correct to talk about business investment falling or stagnating, even if investment is continuing to underperform.