The UK sees a rise in foreign direct investment

The UK was the only one of Europe’s top three economies to record a rise in foreign direct investment last year – in an apparent vote of confidence in Brexit Britain.

Figures compiled by EY showed the number of overseas-backed projects rose by six per cent to 985 while struggling France and Germany saw declines of five per cent and 12 per cent.

Hywell Ball, EY’s UK chair, said the ‘strong performance’ for foreign direct investment (FDI) last year was ‘driven by a resurgence in tech investment and impressive annual growth in sectors such as business services’.

It is the latest evidence of Britain’s economic robustness despite fears over the consequences of leaving the European Union. 

And it comes after recent business survey data showing UK growth outpacing the US and the eurozone.

Foreign direct investment (FDI) projects across Europe as a whole – including the UK – were down 4 per cent with most major nations including Italy and Spain also seeing declines though there was an increase for the Netherlands.

It comes as the eurozone economy stagnates, dragged down by weakness in Germany – which has been dogged by high energy costs and a crumbling industrial base.

The EY survey showed that the tech sector led the way in the UK with 255 projects in 2023, up 8.9 per cent on the year before – even as Europe overall saw a 19 per cent decline.

Britain’s leading position in this industry meant it attracted more than a quarter of all tech FDI in Europe in 2023.

Peter Arnold, EY’s UK chief economist, said: ‘The UK owes much of its FDI growth this year to a resurgence in digital investment, making the UK something of an outlier in comparison to the Europe-wide trend for declining tech projects.

‘After a period of relative European dominance between 2016 and 2019, the UK’s tech project total disappointed in 2022 as high interest rates cut off access to easy capital and the sector cut costs and contracted globally.

‘While this pressure eased slightly in 2023, companies investing in tech still faced tighter borrowing conditions and so may have prioritised more established and resilient tech markets, such as the UK, over emerging ones.’

Financial services was the second biggest sector for foreign investment in the UK, a boost for the City as it shrugs off attempts by the likes of Paris, Frankfurt and Amsterdam to steal its crown as a financial centre.

And Greater London reclaimed its top spot as a European investment destination, overtaking the Ile de France region that includes Paris.

Of the UK’s 985 total FDI projects in 2023, 736 were new – a 13.9 per cent increase on new projects in 2022. The UK has secured the largest number of new investments for the last five years.

However, there was a decline for the UK in some ‘high-value’ areas such as research and development as well as in manufacturing.

France remains Europe’s largest recipient of inward investment overall, with 1,194 projects ongoing in 2023, with Britain second and Germany third on 733.

Mr Ball said: ‘The UK remains a leading European investment destination, but there is no room for complacency.

‘Overall project numbers have not yet returned to pre-pandemic levels and global competition for investment remains fierce.’

The US was the leading source of overseas investment for both the UK and Europe. It represented one in five of all such projects in Britain. India was the second largest foreign direct investor in Britain followed by Germany in third.

Britain’s economic growth will be the slowest in the G7 group of advanced economies next year as high taxes and interest rates bite, the Organisation for Economic Cooperation and Development (OECD) warned yesterday.

The Paris-based group downgraded its outlook for the UK, predicting GDP will increase by a ‘sluggish’ 0.4pc this year and 1pc in 2025. That is down from 0.7pc and 1.2pc in previous forecasts.

UK taxes ‘keep rising’ towards historic highs of about 37 per cent of GDP, the OECD said, only partly offset by national insurance cuts and corporation tax breaks for investment, the OECD said.