4 minute read 21 Jun 2021
Thames at sunset

Why the UK is likely to remain Europe’s leading FS investment hub

By Anna Anthony

EY UK Managing Partner, Financial Services

Passionate about helping the financial services industry become a force for social good. Champion of creating a culture of equality where people feel they belong. Keen wildlife photographer.

4 minute read 21 Jun 2021

The UK continues unchallenged as Europe’s top location for financial services (FS) investment and is expected to keep outperforming the rest of Europe post-pandemic. 

In brief
  • Foreign direct investment (FDI) in financial services fell across Europe by 23% in 2020 as COVID-19 impacted business confidence and travel.
  • The UK attracted 56 financial services FDI projects in 2020; still the highest in Europe but 43 projects lower than in 2019.
  • Investor sentiment on the future of UK FS is positive; the UK remains the most attractive European country and London the leading city for such investment. 

It was with a degree of apprehension - post-Brexit deal and 15 months on from the first pandemic lockdown - that I reviewed the data from EY’s latest UK Attractiveness Survey for financial services, which combines analysis of 2020 foreign direct investment into the UK and a global investor sentiment survey conducted in Spring 2021.

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.

UK FS FDI projects in 2020

56

The UK continues to be Europe’s most attractive location for international investment into financial services

The UK market is well-positioned for continued growth in FS FDI

Whilst the FDI data evidences past year performance, there is good news as we look ahead. Our survey shows that global investor sentiment for UK FS has increased. Half of global FS investors said they plan to establish or extend operations in the UK over the next year. This is a sharp increase from 10% in September and higher than the 45% in April last year. As an important indicator of future investment, these sentiment survey results suggest the UK is looking to a strong future and will continue to outperform the rest of Europe in attracting post-pandemic financial services investment. 

Scotland shows sustained strength in FS

At a regional level, whilst London leads, Scotland continues its decade trend of placing second for FDI into the UK, and investor sentiment increased 10% this year. This suggests the levelling up message across the UK is beginning to gain traction, and we should look to Scotland’s strength and growing prominence as a leading example, and continue to ensure that more of our regions across the UK can capture the benefits of incoming FS investment. 

Despite positive investor sentiment, there’s more work to do

Overall, it’s reassuring to see that the UK remains the most attractive European country for FS FDI, but the drop in projects and its narrowing lead signals that there’s no room for complacency. We can see from France’s increased activity last year that the UK has strong competition in Europe. And although current investor sentiment is very encouraging, now is the time for UK financial services to definitively stamp its mark not only within Europe, but also on the global stage, with a focus on FinTech and innovation and becoming a world leader in sustainable finance. This will help demonstrate that the UK continues to be a world-class and leading financial services centre, and can meet investors’ changing needs and demands. 

Read our press release

Summary

Financial services FDI fell by almost a quarter across Europe in 2020, and whilst the UK market also saw a decline, it has maintained its position as the most attractive European destination for FS investment. This latest survey also shows that global investor sentiment for UK financial services is strong and rising, suggesting the UK will continue to lead on attracting investment post-pandemic. 

About this article

By Anna Anthony

EY UK Managing Partner, Financial Services

Passionate about helping the financial services industry become a force for social good. Champion of creating a culture of equality where people feel they belong. Keen wildlife photographer.