However, the value of deals involving overseas corporations as buyers or bid targets rose sharply.
The Office for National Statistics (ONS) said UK firms invested just £500 million in domestic mergers and acquisitions activity in the three months to September, down around 66% from the £1.5 billion spent in the same period last year. By contrast, domestic mergers and acquisitions activity was worth an average of more than £5bn a quarter in 2008.
The number of deals halved in the three months to September, to 47, from 97 in the third quarter of 2011.
The ONS said the total value of acquisitions abroad by UK firms rose from £6.8bn in the third quarter of 2011 to £7.8bn in the same period in 2012. However, the number of transactions decreased from 77 in the third quarter of 2011 to just nine in the same period in 2012.
The total value of acquisitions in the UK by foreign companies rose 70%, to £8.6bn in the third quarter of 2012, from £5.1bn in the third quarter of 2011.
The number of transactions fell to 31, compared with 68 in the same quarter of the previous year.