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The number of foreign direct investment projects in the UK has fallen to a near 12-year low, fuelling concerns about overseas investors’ appetite for the country in the run-up to the general election next week.
Some 1,555 FDI projects landed in Britain in the fiscal year that ended in March 2024, according to data published by the Department for Business and Trade on Thursday.
The figure was down 6 per cent on the previous fiscal year and 31 per cent below the peak in 2016-17, the year of the Brexit referendum. It was also the second lowest figure recorded since 2011-12, when there were 1,406 new projects.
Software and computer services remained the strongest sector for FDI but registered the biggest year-on-year decline, with new projects falling 31 per cent to 263.
Foreign investment is a key driver of growth in productivity and living standards, but the number of new projects in the year to March was little higher than the 1,538 registered in 2020-21, the first year of the pandemic, when travel and business activity were heavily restricted.
Nigel Driffield, professor of international business at Warwick Business School and FDI research theme lead at the Productivity Institute think-tank, said “high government uncertainty has made things worse”.
“For the past 40 years, Britain’s value proposition to inward investors was that it was a bridge between Europe and the rest of the world,” said Driffield, adding that he now expected investors to “be focused on the UK market rather than exporting to the EU”.
The UK is seeking to attract more inward investment after the US and EU launched ambitious programmes in the form of the Inflation Reduction Act and NextGenerationEU.
The IRA, signed into law by President Joe Biden in 2022, offered almost $370bn worth of tax breaks, subsidies and grants to clean energy developers, which have encouraged fresh investment in the US.
Adopted in 2020, NextGeneration EU is an €800bn joint borrowing scheme to help the bloc build a greener and more digital economy.
A UK government-commissioned review into boosting FDI last year urged ministers to adopt the strategic state-backed approach of the US and European government in wooing overseas investors.
Lord Richard Harrington, the Conservative peer who led the review, also recommended appointing a cabinet-level minister to co-ordinate across Whitehall. He described central government departments as too often “disorganised, risk-averse, siloed and inflexible”.
The estimated number of jobs created by FDI fell 10 per cent year on year to 71,478, the figures from the business department showed on Thursday.
The annual fall in project numbers in the year to March reflected a widespread decline across sectors, type of investment and country of origin. Project numbers were down for new investment, expansion of existing investment and mergers and acquisitions.
The US, the largest overseas investor in Britain, generated 10 per cent fewer FDI projects than in 2022-23. India, the second-biggest investor, registered an 8 per cent fall.
Financial services, the second largest sector for FDI, recorded a 16 per cent year-on-year decline. But investment projects in renewable energy were up 12 per cent.
The Harrington review, which was published in November, showed that FDI capital spending on wind farms had lifted the UK’s FDI figure in recent years but warned of “limited potential for spillover benefits”.
Joe Marshall, chief executive of the National Centre for Universities and Business, said the new data painted “a worrying picture”, noting the impact of the decline in FDI “on jobs and the signals this sends about the attractiveness of the UK’s innovation system”.
“Boosting investment will be critical for the next UK government to grow the economy. Research and innovation are global endeavours, and FDI is a key component that is vital to sustained growth,” he added.