The positive, headline news is that the UK has maintained its position as the most attractive destination in Europe for FS FDI - a position it has held since EY started tracking FDI levels and market attractiveness over 20 years ago. Although the country’s position has been particularly challenged over the last few years, it has remained the continent’s most established financial services ecosystem throughout, and investor sentiment suggests this will continue.
Five of the top six European countries saw declines in FS FDI in 2020
Overall, across Europe, FS FDI fell by almost a quarter as the pandemic impacted business confidence and travel. The UK market mirrors this picture and also saw a decline (albeit more dramatic at 43%), from 99 global projects to 56 last year, which is the largest year-on-year fall this decade. Other leading markets including Germany, Spain, Switzerland and Ireland similarly saw drops in FS FDI last year, with one outlier - France’s FDI activity increased, placing it in second position and narrowing the gap with the UK market.
In 2019, the UK recorded more than double the FS projects of the then second placed country, Germany. However, in 2020, whilst the gap has widened with Germany, FS projects into France increased by almost a third, overtaking Germany for second place, and meaning the UK’s lead over France is now a much more modest 14%.
But even though the UK’s lead has narrowed in 2020, this is quite possibly just a short-term response to pandemic-related business disruption and the completion of the Brexit deal. We shouldn’t forget that the year after the UK’s vote to leave the European Union, UK financial services FDI projects fell by 26%, before bouncing back to a record high of 112 projects the following year. Investment has now levelled off for many markets that saw a ‘Brexit uplift,’ with just France sustaining strong FDI in 2020.