FDI and the UK’s economy
UK experiences fall in interest from investors last year
In 2023, interest in UK companies among investors declined by 14% compared to the previous year, according to our analysis of the latest ONS data.
This reduction was influenced by various factors, including global economic conditions and changes in investor sentiment. While some sectors experienced fluctuations in FDI positions, the overall trend reflected a decrease in investor confidence.
That landscape didn’t change as we headed into the start of 2024. Q1 saw 18 fewer domestic and cross-border M&A transactions (426) than the Q4 2023 (444). The value of inward M&A (foreign companies acquiring UK companies) stood at £6.1 billion in Q1 2024, £4bn lower than Q4 2023.
Cross-border deal volumes lowest since 2020 lockdowns
The UK has witnessed a significant decline in cross-border deal volumes, reaching their lowest point since the 2020 lockdowns. Uncertainties related to geopolitical events, economic recovery, and regulatory changes contributed to this downturn.
Despite the challenges, certain industries continued to attract FDI. Notably, digital investment projects played a significant role in maintaining some level of foreign investment. The number of tech projects being funded by FDI accounted for over a quarter of all those in Europe, and showed an increase of 8.9% between 2022 and 2023, according to EY data.
London and the South East continue to act as magnets for FDI. Combined, the regions accounted for 42% of deals in 2023, up from 35% in 2019.
The inbound stock of FDI from the US was £676bn in 2021, with financial services making up 36% of that.
The US continues to be the largest investor into the UK, accounting for 22% of all completed cross-border deals, down from 34% in 2022, according to EY. As highlighted in last year’s report, the inbound stock of FDI from the US was £676bn in 2021, with financial services making up 36% of that.
“The attractiveness of the UK as a place for US investment remains as strong as ever owing to language, location, institutions, status as a global financial centre and the legal and regulatory environment.
“Overlapping this, the UK is home to the four largest offshore wind farms in the world, four of the world’s top 10 universities and to more business unicorns than France and Germany combined. We are seeing investment from the US across various industries, the headliners being financial, business and professional services; tech – fintech, digital, AI & cybersecurity and green-tech; and life sciences.”
Georgie Collins, Head of US Desk
Whilst London remains the main benefactor of this investment in the UK, Scotland ranks in second, with the Midlands, North West and North East continuing to attract US investment.
Companies investing in the UK, with London as its prime destination, continue to enjoy a range of benefits. The UK’s robust legal framework ensures a safe, highly regulated environment for overseas investments, while its speed and ease of doing business – particularly given the lack of language barriers – is attractive. On top of this, the UK presents few constraints or restrictions for overseas investors.
FDI and the UK’s sectors
FDI into the UK’s sectors largely reflects the national trend, with over 10% fewer projects being funded in 2023/24 than 2022/23, according to data from the Department for Business and Trade.
These projects supported the creation of 71,478 jobs and safeguarded an additional 11,613 existing jobs. The majority of these jobs were across the automotive, food & drink, and environment, infrastructure & transportation sectors.
Of the sectors with available data, wholesale saw the largest increase in FDI projects, with 46 more projects being recorded in 2023/24 than 2022/23. This is followed by business and consumer services and creative & media.
The biggest decrease was seen in the software & computer sciences sector, where 119 fewer projects were recorded in 2023/24. Despite this, the sector remains a magnet for FDI, accounting for 263 projects out of a total of 1,511. The investment into this sector helped create almost 16,000 jobs.
Number of FDI projects per sector
Source: Source: Department for Business and Trade