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The number of foreign direct investment projects in Britain has fallen to the lowest level in 12 years, fueling concerns about foreign investor interest in the country ahead of next week’s general election.
Britain saw around 1,555 FDI projects enter Britain in the fiscal year ending March 2024, according to data published by the Department for Business and Trade on Thursday.
The figure was 6 percent lower than the previous budget year and 31 percent lower than the peak in 2016-2017, the year of the Brexit referendum. It was also the second lowest figure since 2011-2012, when there were 1,406 new projects.
Software and computer services remained the strongest sectors for FDI, but recorded the largest year-on-year decline, with a 31 percent decline in the number of new projects to 263.
Foreign investment is a key driver of productivity growth and living standards, but the number of new projects in the year to March was little higher than the 1,538 recorded in 2020-21, the first year of the pandemic, when travel and business activity were severely restricted.
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Nigel Driffield, professor of international business at Warwick Business School and head of the FDI research theme at the Productivity Institute think tank, said that “high uncertainty in government has made matters worse”.
“For the past 40 years, Britain’s value proposition for foreign investors has been to bridge Europe and the rest of the world,” Driffield said, adding that he now expects investors to “focus more on the UK market than on export to the EU”.
The UK is trying to attract more foreign investment after the US and EU launched ambitious programs in the form of the Inflation Reduction Act and NextGenerationEU.
The IRA, which was signed into law by President Joe Biden in 2022, offered nearly $370 billion in tax breaks, subsidies and grants to clean energy developers, which has encouraged new investment in the US.
NextGeneration EU, adopted in 2020, is a joint €800 billion lending programme to help the bloc build a greener and more digital economy.
A UK government-commissioned review into encouraging foreign direct investment last year urged ministers to adopt the strategic, state-backed approach of US and European governments to attracting foreign investors.
Lord Richard Harrington, the Conservative peer who led the review, also recommended appointing a Cabinet-level minister to coordinate across Whitehall. He described central government departments as too often “disorganised, risk-averse, isolated and inflexible”.
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The estimated number of jobs created by foreign direct investment fell 10 percent year-on-year to 71,478, business department figures showed on Thursday.
The annual decline in project numbers in the year to March reflected a widespread decline across sectors, investment type and country of origin. Project numbers decreased for new investments, expansion of existing investments and mergers and acquisitions.
The US, the largest foreign investor in Britain, generated 10 percent fewer FDI projects than in 2022-2023. India, the second largest investor, recorded an 8 percent decline.
Financial services, the second largest sector for foreign direct investment, recorded a 16 percent year-on-year decline. But investment projects in renewable energy increased by 12 percent.
The Harrington study, published in November, found that FDI capital spending on wind farms had boosted UK FDI figures in recent years, but warned of “limited potential for spillover benefits”.
Joe Marshall, chief executive of the National Center for Universities and Business, said the new data “paints a worrying picture,” noting the impact of the decline in foreign direct investment “on employment and the signals it sends about the attractiveness of the UK innovation system’. .
“Boosting investment will be crucial for the next UK government to grow the economy. Research and innovation are global efforts, and foreign direct investment is a key component essential for sustainable growth,” he added.