This article is more than 2 years old

This article is more than 2 years old

The UK remains Europe’s top destination for inward investment, but its star is waning as Brexit uncertainty allows Germany and France to close the gap.

Last year the UK attracted 6% more foreign direct investment (FDI) projects that the previous year, according to figures compiled by EY in a survey of 450 global investors, but fell behind France, which grew by 31%, and the European average growth rate of 10%.

EY said the UK’s market share fell for the second successive year in 2017 and was likely to suffer a further decline as investors said they favoured Germany for the future. France was in second place, supported by the “Macron effect”, and the UK came third.

The UK attracted 1,205 FDI projects in 2017 compared with France’s 1,019.

CBI cuts forecast for UK economic growth as Brexit concerns linger Read more

Britain enjoyed a 22% boost in foreign investment into digital enterprises, but this compared with an average 33% rise across Europe.



Investor concerns over Brexit were felt most in financial services, business services and a decline in the number of firms opening headquarters in the UK.

EY said the figures contrasted with OECD and United Nations data for the UK that showed a collapse in FDI between 2016 and 2017 of more than 90%. However, the OECD and the 2018 UN Conference on Trade and Development (Unctad) report includes mergers and acquisitions, which soared ahead of the Brexit vote only to collapse in 2017.

EY’s chief economist, Mark Gregory, said his firm’s report focused on projects rather than the purchase of shares in UK businesses.

He said: “Once again we find evidence of an economy in transition with individual sectors behaving in different ways in response to changes in the business environment.”

Gregory said the services sector was the first to delay or switch investment plans while the manufacturing sector, which tends to operate over longer timescales, had proved slower to react to the referendum vote.

“In part this reflects the fact that it is easier to delay or shift investments [in the services sector], compared to capital-intensive activity in manufacturing for example,” he said.

While foreign investors have become reluctant to invest as much as they did in Britain, 2017 was a record year for the outflow of funds following a 35% increase in UK businesses investing into Europe.

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EY said UK firms were starting to “position themselves for Brexit” with financial services sector, business services and digital services firms leading the way.

The EY UK chairman, Steve Varley, said: “A swell of digital projects flowed into Europe changing the shape of FDI and bringing new dynamic businesses to the continent. Digital projects increased by 33% across Europe – three times the rate of overall market growth – and 34% in London, but only 22% across the UK as a whole.

“At a time when investor sentiment towards the UK as an attractive destination is weakening, opportunity arises in the shape of digital. An urgent digital drive is needed with a renewed focus on digital skills, infrastructure, and investment in research and development will help to shape the UK as an attractive environment, to maintain its competitiveness in a post-Brexit world,” he added.