UK second most popular country in Europe for inward foreign investment

The UK is the second most common destination for foreign direct investment in Europe, a report from professional services firm Ernst & Young has said.

London did regain its standing as the most popular European city for investment though after being overtaken by Paris the year before, while the North West and East of England regions saw significant increases in FDI projects.

In total, the UK received 975 projects last year compared to 930 in Germany but ten behind France and 12 per cent down on 2019’s figure of 1,109 as the number of digital technology projects plummeted by a quarter.

Capital: London did regain its standing as the most popular European city for investment

The level of UK investment in Europe also fell by around 25 per cent to 375 projects, the lowest amount since 2016; however, EU countries’ investment in the UK arrested its post-Brexit decline by registering a modest growth in projects. 

There was a substantial boost in the scale of transport and logistics, and life sciences projects, with the former almost doubling following a massive growth in online shopping during the pandemic and the latter jumping by 62 per cent. 

EY also said the UK’s share of FDI projects across Europe remained stable despite the total quantity of projects on the continent declining by more than 800 to 5,578.

The United States remains the UK’s biggest source of foreign investment despite a slight fall in their overall share of the UK’s FDI projects, and it also remains the top beneficiary of investment from India, Ireland and Australia.

Alison Kay, a Managing Partner for Client Services at EY UK & Ireland, said: ‘The UK has demonstrated resilience and adaptability in attracting investment.

‘Key sectors have changed over time, and the UK attracted the most’ new’ projects in Europe in 2020 rather than relying on reinvestments. However, its former dominance of the FDI market has been replaced by a competitive three-way tussle with Germany and France.’

Digital boom: EY found that investment in the UK’s transport and logistics sector almost doubled following a massive growth in online shopping during the coronavirus pandemic

She noted that investors believed the digital technology and health sectors were ‘key growth areas’ for the UK and thought the country had the most impressive Covid-19 recovery plan in Europe, probably due to the vaccination programme.

Kay did say the UK remained weak in renewable technology investment, but that the United Nations climate change summit in Glasgow later this year should encourage the country to improve its standing in this field.

‘There is an opportunity for holistic, targeted initiatives to attract FDI in the priority areas that should form the core of a ‘Building Back Better’ strategy: innovative research and digital technology; ‘cleantech’; and levelling-up the UK’s economy,’ she added.

Regional attraction: Outside London, Cambridge (above) is a popular destinations for inward investment due to its strong life sciences and research and development sectors

In a strong sign of greater geographical balance, London’s share of FDI projects fell by about nine percentage points year-on-year to 39.2 per cent as the capital city experienced double-digit percentage drops in investment.

By contrast, the North West and East of England regions recorded double-digit rises, benefiting from greater support for the digital, agri-food and transport industries, and cities like Manchester and Cambridge being popular locations for funding.  

‘Our research suggests the UK’s ‘levelling up’ message has landed effectively with investors, with almost two-thirds aware of the policy,’ remarked Peter Arnold, an EY UK Economic Advisory Partner. 

‘There is scope to build on these foundations, with almost half of investors planning to change their supply chains in future and a fifth considering reshoring to the UK. 

‘With the manufacturing and logistics opportunities this will create likely to fall outside of London and major cities, this may be a one-off opportunity to reshape the UK’s economic geography.’