Investment is spending on capital goods by firms and government, which will allow increased production of consumer goods and services in future time periods. Be careful not to confuse the economist's definition of investment with another interpretation - that investment involves putting funds into financial assets such as stocks and shares.

The chart below shows the annual percentage change in capital investment spending in the British economy since 1975. You can see that investment demand is quite volatile from year to year. Indeed in years of economic recession, the real value of investment spending can fall quite sharply because businesses decide to postpone or cancel investment projects.

Investment spending across the UK economy has increased (in real terms) in each of the last eight years partly because the economy as a whole has enjoyed a period of sustained economic growth. Service industries have enjoyed the lion's share of this spending on capital goods, but we have also seen large scale increases in capital expenditure in new economy sectors such as information technology and communication industries.