Business investment fell in the first quarter as firms cut back their spending in the wake of the credit crunch, according to official data.

The Office for National Statistics (ONS) shows business investment in the first three months of 2008 was 1.4 per cent below the previous quarter, standing at £36.22 billion.

The weakness was spread across several sectors, with manufacturing particularly affected – business investment in this area was down 4.9 per cent compared to the previous quarter.

Construction and other production sector investment fell 3.4 per cent while the services sector was flat.

Non-manufacturing public corporations investment is estimated to have fallen by 11.6 per cent, the ONS added.

Global Insight economist Howard Archer said: “Business investment seems set to be markedly weaker in 2008 in the face of tight lending conditions, markedly softer final demand, weakening profitability and lower business confidence, reflecting heightened concerns and uncertainties over the economic outlook.”

The May report from the Bank of England suggested firms have been easing back on business investment plans on uncertainty about growth prospects and tighter credit conditions.

Investment intentions “fell sharply further” in the services sector, the report said, having fallen in the last six months.

Weaker investment could lead to a further slowdown in the growth of the UK’s GDP, Mr Archer added.