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Investment dearth worsens

These show that non-financial firms are more reluctant to invest than ever before. Although aggregate retained profits jumped by 19.4 per cent in Q4 - thanks to higher pre-tax profits, lower interest payments and a drop in dividends (partly due to BP) - capital spending stagnated. As a result, companies piled up cash at a record rate. Their retained profits exceeded real investment by £22.9bn, or 6.2 per cent of GDP in Q4 - a record. To put this another way, their capital spending was a mere 51 per cent of retained profits in Q4. Not only is that the lowest proportion since records began in 1987, it is barely half the average proportion for the 1987-2007 period.

This reluctance to invest matters for three reasons. First, low investment causes slow GDP growth - not least because new investment usually embodies the new technologies that make workers more productive.

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