investment by UK businesses hit a record high of £29.17 billion over the past three months, official figures showed today.

The Office for National Statistics (ONS) said business investment between April and June was 0.5% higher than the first quarter of 2004.

Manufacturers contributed 2.6% more investment during the period, although public sector service investment fell by 2.2%.

A Treasury spokesman said: "Today's figures provide further evidence that growth is becoming stronger and more balanced, and demonstrate the confidence of businesses in the stability and sustained growth of the economy."

Simon Rubinsohn, chief economist at fund manager Gerrard, said the increase was modest and suggested businesses were opting to pay down debt rather than expand capacity.

"This not only raises a question mark about the near-term outlook if consumers are beginning to rein in their spending but also about the inflation outlook," he said.

Friday August 27, 2004