The future of FDI into the UK

The Government’s overarching Trade Strategy, emphasising openness, digital trade, and defence cooperation, sets a framework for strengthening the UK’s position as an inward investment destination.

Recent agreements with the United States and India align with this strategy, offering opportunities to deepen supply chain integration while mitigating some of the risks posed by rising global protectionism.

In the digital sphere, proposed ‘trade corridors’ with the EU have the potential to ease cross-border flows of data and services, though their design will need to balance alignment with European regulations and maintaining close ties with the US.

Defence is the area where progress has been most tangible amidst recent increases in geopolitical tensions: the UK-EU defence deal signed in May 2025 has reinforced cooperation and is likely to channel further investment into a sector where the UK already holds comparative advantages.

Taken together, these developments illustrate how the Trade Strategy is beginning to translate into sector-specific gains, but its overall success in boosting inward investment will depend on the Government’s ability to navigate ongoing geopolitical uncertainty, and global and domestic economic headwinds.

The Modern Industrial Strategy

The Modern Industrial Strategy (MIS) lays out the current Government’s broad economic strategy. It aims to target high-growth sectors, support regional rebalancing, and enhance the UK’s attractiveness within global supply chains.

Within the MIS, there’s a clear focus on eight high-productivity sectors collectively referred to as the ‘IS-8’:

Advanced manufacturing
Defence
Clean energy
Digital and technological industries
Creative industries
Financial services
Life sciences
Professional and business services.

The DBT’s sectoral breakdown of inward investment projects confirms that priority areas such as technology, finance, and advanced engineering align closely with areas where the UK continues to hold comparative advantages, at least in terms of inward investment (see Table 1 above).

Yet their recent performance has largely tracked the broader stagnation in the UK’s FDI landscape. For instance, from 2023/24 to 2024/25, project numbers in life sciences, creative industries and renewable energy fell 25%, 43% and 32% respectively. Even in stronger areas like financial services and technology, modest declines or stagnation have been recorded. This in turn suggests that the subdued performance more broadly largely represents global and domestic macroeconomic headwinds at play.

Playing to sector strengths

Despite these headwinds, there are promising signs for some strategic sectors.

International investors continue to view UK tech positively, citing the country’s technologically literate workforce, start-up ecosystem, and strong research institutions as draws.[4]

This reinforces the view that the recent decline, at least in tech-related inward investment, may be cyclical rather than structural, reinforcing the importance of addressing broader macroeconomic concerns.

Similarly, clean energy attracted favourable views from investors, particularly due to the UK’s growing renewable energy mix and its ecosystem of innovative firms in the sector.[5]

Figure 5: Total projects in strategic sectors

Geographically, the MIS, on initial view, heavily favours London and the South East, mainly due to their concentration of finance, technology, life sciences, and professional and creative industries.

This pattern is mirrored in the latest Investment Attractiveness Index, where London ranks first and Oxford third, and is further reinforced by the regional distribution of FDI projects.

That said, to circumvent this, the MIS also positions Freeports and Investment Zones as mechanisms for fostering regional growth by providing tax and regulatory incentives. Early data, however, suggests that their track record has been mixed.

As of late 2024, only six businesses had signed up to use customs sites at UK freeports, since the inception of customs sites in 2021. This is corroborated by statistics from the DBT, which highlights that UK freeports had generated just under 2,000 new jobs between December 2021 and March 2025 and received £2.9 billion in associated capital expenditure.

While some of this can be attributed once more to the global and domestic headwinds facing the UK economy, another reason for the slow uptake may in part reflect overlapping governance structures and uncertainty around responsibilities, slowing early delivery.

Recognising this, the current Government has moved to integrate the two models under the broader banner of Industrial Strategy Zones, as part of the MIS. The aim of this change was to simplify oversight and align them more clearly with national growth priorities. Alongside this, measures such as the £600 million Strategic Sites Accelerator fund have been introduced to help prepare land, remediate sites, and provide supporting infrastructure, with the intention of improving coordination, accelerating project pipelines, and ultimately unlocking higher levels of private investment.