UK retains second spot in Europe for FDI

Political upheaval in the UK are believed to be behind a slight fall in foreign direct investment (FDI) last year. Yet the nation retained its position as second most attractive place in Europe for overseas funding, thanks to its 'global approach'.

David Sapsted

21 June 2023

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This year's UK Attractiveness Survey from EY also showed that the UK once again ranked highest in Europe for brand new FDI projects and continued to deliver more total jobs and more jobs per project than its major competitors. And while London remained the most popular place for investment, Scotland and several English regions achieved sizeable increases in attracting new projects.

UK second, but 'adds most value' to FDI projects

Overall, the UK recorded 929 FDI projects in 2022, down from 993 in 2021. Once again, France topped the European table with Germany coming in at third place."But the UK performed well on project value, delivering the highest jobs total in Europe, more jobs per project than Germany or France, a strong R&D performance, and Europe’s most ‘new’ projects," reported EY.FDI in tech projects fell by 23.3 per cent last year, proving to be "a key factor in the UK’s overall project decline", but the nation remained ahead of the rest of Europe in the sector.The survey found that the US and India were the leading sources of UK FDI last year. Almost a quarter of projects had their origins in the US, while India accounted for 8.8 per cent, representing 58.2 per cent of all Indian-backed projects in Europe in 2022, up from 51.2 per cent the previous year.

UK's 'global approach' appreciated by investors

Peter Arnold, EY’s UK chief economist, said: “The UK’s FDI origins are evidence of the country’s global approach, which has been particularly important since its departure from the EU."Places like India, Canada and Australia have risen up the list of the UK’s top investors in recent years, with the UK able to leverage strong cultural links to attract investment that isn’t as accessible for European competitors."The UK’s accession to the CPTPP and the potential for new trade deals, including with India, present further opportunities for an increasingly global tilt for the UK.”The latest survey comes on the heels of one a month ago which showed that Britain was still by far the most attractive location in Europe for FDI in financial services. EY’s Attractiveness Survey for Financial Services found that the UK attracted 76 financial services projects in 2022 – an increase of 13 projects on 2021 – while second-place France secured 45 FDI projects, a decrease of 15 on the previous year.

UK regions increasingly attractive as more jobs created

In the latest survey, London recorded 299 FDI projects in all sectors in 2022, down from 394 in 2021. And although the capital remained by far the most favoured location, Scotland and English regions made marked progress.In fact, Scotland remained the most attractive place in the UK for FDI in 2022 outside London. EY recorded 126 inward investment projects, representing nearly 14 per cent of total projects and the highest percentage yet in Scotland.South of the border, all Northern regions, the East Midlands, the East of England and Wales saw FDI project numbers rise by 10 per cent.Alison Kay, managing partner for client service at EY UK & Ireland, said: “Europe had a challenging 2022 for inward investment, with overall projects broadly flat. But, digging into the detail, the UK has a strong investment story to tell.“Investment intentions are at a record high and almost half of the investors surveyed think the UK’s attractiveness will improve in the near term. Significantly, the UK’s clear focus on project value over volume continues to bear fruit."While the UK is behind France on the total number of projects, it is Europe’s clear leader when it comes to strategically important FDI. Over one in four UK projects were linked to Research & Development or new company headquarters – France managed under one-in-five – while UK projects tend to be linked to more jobs than those in France or Germany.”The survey found that, for projects where job creation was forecast, the UK led Europe on total jobs last year (47,000), ahead of Spain (39,000) and France (38,000).As far as investments in projects classified as 'new’ – as opposed to re-investments or extensions – the UK retained its position as Europe’s leading nation for such projects for a second year in a row. Of the UK’s 929 total projects in 2022, 646 were new.Looking at why overall numbers were down, EY concluded: "Political uncertainty and the ongoing impact of Brexit on trade and investment will likely have played a part in the UK’s performance – but Europe-wide factors, such as high energy prices and high inflation, will have had an impact on the UK’s attractiveness, too."

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