4 minute read 4 Jun 2019
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Why using its strengths will help the UK retain investor attractiveness

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

4 minute read 4 Jun 2019

The EY UK Attractiveness Survey shows that the UK needs to take action – or risk a further weakening of its investor attractiveness.

This report maintains EY’s long track record of sponsoring research into UK trade, including FDI, reflecting our desire to encourage an open exchange of information and insight between business leaders, investors and policymakers on how to enhance the UK’s economic performance.

For the UK, in common with other nations, FDI represents a vital source of capability, economic activity and jobs. The UK’s continued capacity to attract FDI remains under close scrutiny as this source of capital offers a unique insight into how foreign investors and businesses view the UK’s potential.

Last year, our research suggested that it was doing reasonably well managing the challenges posed by Brexit and ongoing technological change. This year, our report shows that the FDI market in Europe has been very challenging and that the UK has seen a reduction in FDI volumes and a decline in investor sentiment. Our analysis shows that Brexit has changed the economic situation in the UK and urgent action is needed to chart a new path to future success in this new environment.

The FDI figures for 2018 tell their own story

While the UK held onto its longstanding position as Europe’s FDI leading recipient, the number of projects it attracted in 2018 fell 13% from the previous year, against a backdrop of a 4% decline in FDI projects in Europe a whole. As a result, the UK’s share of all European projects slipped to 17% – its lowest level in the two decades we have been publishing our attractiveness surveys.

A more detailed look at the findings helps identify the challenges. The UK’s recent success in attracting manufacturing FDI came to an abrupt end with a 35% fall in the number of new factory projects in 2018.

At the same time, our figures show that the UK managed to remain the leader in attracting digital investments in Europe, but its market share of digital investments in Europe fell to 23%.

The UK still has a window of opportunity in which it can build on its proven strengths by implementing responses aimed at maintaining its long-term attractiveness to FDI.
Steve Varley
EY UK&I Chairman

Our survey of international investors points to reasons for the changes in the UK’s performance, with investors voicing the highest level of pessimism over its future attractiveness ever recorded in these studies, and 15% of inward investors in the UK saying they have put their investment plans on hold since the EU referendum.

That said, our perception study finds there’s no immediate crisis: only 6% of investors are currently intending to relocate operations to Europe, and the proportion planning further investments in the UK has only declined marginally. The UK still has a window of opportunity in which it can build on its proven strengths by implementing responses aimed at maintaining its long-term attractiveness to FDI.

In this report, we suggest a set of policy steps to help achieve this, as the UK develops its new post-EU economic identity. We at EY look forward to supporting and participating in that renewal.

Key findings

  • The UK remained the number one destination for FDI in Europe in 2018, ahead of Germany and France, with 1,054 projects, its third-highest number of FDI projects in 20 years. However, this was a 13% drop in FDI projects compared to 2017 (1,205 projects).
  • Projects in Germany also fell by 13%, largely due to a slump in business services investment. By contrast, projects in France increased by 1%, moving it into second place in Europe above Germany for FDI projects.
  • The UK still leads in digital but European share in the sector fell four points to 23% and investor concerns in the manufacturing, HQ, automotive and chemical sectors led to a decline in investment in those areas.
  • The UK saw a significant geographical imbalance in 2018, with a relatively strong performance in London and the South East, while the rest of the country saw significant declines.
  • According to our perceptions survey, investors in the UK remain committed to their existing operations with only 6% planning to move assets in the next three years.

For the full findings, download our report (pdf)

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Listen to UK Chief Economist, Mark Gregory’s podcast

Summary

Although the UK remains Europe’s top foreign direct investment destination, it needs to take action or risk a further weakening of its position. EY’s UK Attractiveness Survey suggests a series of policy steps to help it build on its proven strengths as it transitions to life after Brexit.

About this article

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.