Overseas investors return to Britain after pandemic decline

Foreign direct investment in Britain rebounded last year from the lows recorded in the first year of the pandemic, but it remains below the levels of 2019.

Investment in growing sectors such as technology and “wellbeing” rose, but Britain lags behind its European competitors in its share of the rising number of manufacturing projects, according to EY, the professional services firm.

There were 993 foreign direct investment projects in the UK last year, up from 975 in 2020; 1,109 were recorded in 2019.

Britain has the highest number of wellbeing projects backed by such investment, with a quarter of the market share across Europe. Investment by foreign companies in sectors including health, pharmaceuticals and medical devices rose from 64 in 2019 to 119 in 2021. Digital technology remained the most popular sector: there was a 7 per cent rise in projects in Britain, despite a fall of 7 per cent across Europe. The sector represents a third of all British investments, compared with a fifth of projects across the Continent.

London remains Europe’s leading location for foreign investment projects, but its market share within Britain fell amid rapid growth in investment in Scotland, the southeast of England and the West Midlands. Scotland and the southeast recorded rises of 14 per cent in the number of projects, while projects in the West Midlands rose by almost a third.

There were 394 investment projects recorded in the capital in 2021; 383 were recorded in 2020 and 538 in 2019.

Last year was the third successive year that France received the highest number of foreign direct investment projects in European countries because of its quick recovery from coronavirus restrictions.

Peter Arnold, chief UK economist at EY, said that France’s recovery had outstripped those of its key competitors. “The UK’s services-driven economy was disproportionately affected by continued global travel disruption, while Germany felt the effects of global supply chain disruption, particularly in the automotive sector,” he said. “Both factors had less of an impact on the French economy.”

The gap in the number of investment projects between Britain and France has widened, but the UK received the highest proportion of new projects while French investment was made up mainly of extensions to existing proposals.

“The proportion of investors looking to back projects in the UK is at a record high,” Alison Kay, managing partner for client service at EY, said. “Also, the number of ‘new’ projects secured by the UK, which typically generate more jobs and higher levels of investment, was not only up on the year before but also was the highest level in Europe.

“It seems the UK’s focus on attracting greater-value FDI projects over volume is starting to bear fruit, building on the country’s recent successes in research and development and digital technology. There remains room for improvement. Investment into Europe has been shifting from services to manufacturing, which leaves the UK with ground to make up. As we’ve said before, a drive towards ‘green’ manufacturing could help the UK to attract investment, while accelerating progress towards sustainability and levelling-up goals.”