“No room for complacency” warns EY
Huell Ball, EY UK chairman, commented: “The UK performed well for FDI last year, driven by a resurgence in technology investment and impressive annual growth in sectors such as business services. Importantly, it is also a strategically valuable investment, with UK FDI creating more jobs than anywhere else in Europe.”
“The UK remains a leading European destination for investment, but we cannot afford to become complacent. Overall project numbers have not yet returned to pre-pandemic levels and global competition for investment remains fierce. The UK enjoys clear advantages, from a strong base across emerging industries such as life sciences, to London’s status as a financial powerhouse. Combining these strengths with a strategy that prioritises attracting capital to high-growth sectors and shares the benefits of that investment across all regions, the UK should be able to drive more opportunity and prosperity in the future.”
Digital investment drives UK FDI recovery
Despite a 19% fall in the number of technology projects across Europe, digital technology remains a leading area of UK FDI and played a major role in the UK’s year-on-year FDI growth.
The UK recorded 255 tech projects in 2023, an increase of 8.9% on the previous year. The UK continues to be Europe’s leader in tech FDI, attracting more than a quarter (26.7%) of all European tech FDI projects last year. This follows a disappointing performance in 2022, when the number of tech FDI projects fell to 234 and the UK’s share of European digital projects dropped to 19.8%.
Financial services was the UK’s second largest FDI project sector for the second year in a row, with over 100 projects recorded in 2023.
Business services and utility supply were the third highest ranked sectors for FDI into the UK, recording 92 projects each in 2023. The UK secured 16.7% of business services projects to Europe and 30.5% of projects in the utility supply sector in 2023.
The business services sector saw a 31% increase in projects from 2022, but the 2023 total remained 26.5% lower than the sector’s 10-year average. The utility supplies sector saw a 35% annual increase in FDI projects.
Among the other sectors with the highest number of FDI projects into the UK, machinery & equipment (67), transport & logistics (51), and health & social care (33) all recorded project numbers above their annual average over the past 10 years.
For health and social care projects, the UK has secured almost half (47.1%) of the total number of projects in Europe in 2023.
Peter Arnold, EY chief UK economist, comments: “The UK’s strong FDI growth this year is largely due to a resurgence in digital investment, making it an outlier amid a European trend of declining tech projects across the board. Following Europe’s dominance from 2016 to 2019, total UK tech project value in 2022 is disappointing as high interest rates make capital difficult to access and the tech sector cuts costs and scales back globally. While this pressure eases somewhat in 2023, companies investing in tech still face tough borrowing conditions and may have prioritised established and resilient tech markets like the UK over emerging markets.”
“In the UK, investment in electricity supply also grew, with strong investment in renewables, including offshore wind. The UK has traditionally been seen as an attractive destination for clean energy investment thanks to the current mix of renewables in the domestic electricity supply, access to project finance via London, and an already growing ecosystem of clean tech and sustainability businesses in the country. The government has committed to accelerating the grid connection process, which, if achieved, may encourage more developers to provide capital for the UK’s clean energy transition, further encouraging investment in electricity supply in the future.”
UK R&D, manufacturing and head office activities decline
Examining UK FDI projects by activity, declines are evident in some high-value sectors. Research and development (R&D) projects are down 44% compared to 2022, the lowest number of R&D projects since 2016 and the second lowest number of R&D projects in the UK in the past decade. Manufacturing projects also fell, down 14% to 150.
Projects to establish corporate headquarters in the UK also fell sharply by 34%, to a total of 88, the lowest level since 2018. Despite the decline in absolute number of projects, the UK increased its share of European headquarters projects, accounting for 39.5% of all European headquarters projects in 2023. This was the UK’s highest headquarters project market share since 2016.
The largest number of projects in the UK (392) relate to business services activities such as setting up call centres or testing and training facilities, with a significant increase of 35.6% expected in 2023. The UK won a fifth of European projects (21.1%) related to business services activities last year.
Peter Arnold comments: “While we are pleased to see an increase in project numbers across the UK, there has been a decline in the types of high-value activity that policymakers have previously prioritised. Total UK R&D, HQ and manufacturing project numbers have fallen since a fairly strong 2022 for these sectors. Across Europe, R&D and manufacturing project numbers have also fallen this year, with multinationals likely deferring investment due to rising energy costs and the appeal of US inflation-busting legislation. Now that energy prices have returned to traditional levels, policymakers will want to know how to attract future investment into these high-value sectors to the UK.”
UK remains top for jobs and ‘new projects’
In terms of job creation, the UK continues to perform well: for projects where the total number of expected jobs was reported, the UK continues to lead Europe in total jobs created (52,200), the second highest figure in the last decade and ahead of Spain (42,400) and France (39,700).
The UK recorded an average of 60.9 jobs per FDI project, higher than in 2022 (58.9) and the UK’s second highest jobs per project rate in the past decade. For the fourth year in a row, the UK surpassed France (35) and Germany (49) in the number of jobs per project.
However, the UK’s job share is slightly below its market share of overall FDI projects, indicating that the UK has secured slightly smaller projects than the rest of Europe. The UK secured 16.3% of jobs from European FDI (project share was 17.3%). This is up from 13.6% in 2022.
“New” projects, as opposed to reinvestment or expansion, are a way of measuring a country’s ability to attract new investment, and the UK has maintained its position as Europe’s top country for new projects for the third year in a row.
Of the UK’s total 985 projects in 2023, 736 are new projects, a jump of 13.9% from the 646 new projects in 2022 and above the 10-year average of 731. In contrast, across Europe, the number of new projects fell 3% overall to 3,345 in 2023. New projects to Germany increased 10.2%, while in France they fell 4.7%.
The UK has secured the most new projects over the past five years, with 173 more projects secured than Germany for 2023 (135 more in 2022).
