Foreign Direct Investment: Britain Rising as Europe Falls

Hywel Ball, chairman of EY UK, said: “The UK saw growth in the number of inward investment projects last year, outperforming most other countries in Europe. There were exceptional results in some regions, including London, Scotland and the West Midlands, but investment remains uneven across the country.

“Our research shows that global investors are confident about the UK’s future prospects and have an appetite to invest outside London. There is an opportunity for policymakers to focus on how best to capitalise on the UK’s distinct strengths, such as its thriving technology and artificial intelligence sectors and leading expertise in areas such as renewable energy, particularly offshore wind. Supporting a skilled workforce across the country and implementing the right mix of national policies and tailored local strategies will be essential to maximising growth, ensuring all parts of the country benefit from the UK’s strong investor position.”

Peter Arnold, EY UK Chief Economist, comments: “We saw the UK return to a period of relative political stability in 2023 after a volatile 2022, which may explain the improvement in domestic investment performance. The new UK Government has the opportunity to build on this learning and reaffirm the UK’s reputation as a stable, business-friendly place to invest. The UK could see a combination of information initiatives to reset international perceptions, alongside practical policy changes that unlock investment.

“The government may also be considering what practical policy changes could help unlock investment. For example, relaxing planning requirements and shortening the timeframes for approving infrastructure spending could help large projects move from concept to construction more quickly and reassure investors that they can get timely returns.”

The regional gap in UK foreign direct investment is widening

Greater London, Scotland, the West Midlands and the South West were the only UK regions to see an increase in the number of FDI projects in 2023. The number of projects in the South East (67) and East of England (44) was consistent with the previous year, while all other regions and devolved administrations in the UK saw a decrease.

The largest falls were recorded in Wales, Northern Ireland and the East Midlands. In Wales, FDI projects fell by 52%, while in Northern Ireland there was a 35% drop. The East Midlands recorded 31 FDI projects in 2023, a 35% drop on the previous year.

Regions in the North of England collectively saw a 22% fall in the number of FDI projects in 2023. The North West, Yorkshire and the Humber and the North East saw a fall in projects of 23%, 33% and 5% respectively. Yorkshire and the Humber (34) and the North West (68) received the fewest FDI projects (34) since 2014.

Greater London’s recovery from a difficult 2022 has seen the region’s share of domestic FDI take-up grow. Greater London accounted for over a third (36%) of all FDI in the UK in 2023, up from 32% the previous year. In comparison, the North East, North West and Yorkshire and the Humber combined accounted for 14% of FDI in the UK in 2023, up from 19% the previous year.

UK Cities FDI Performance: Birmingham Hits Decade High

Outside London, the most successful UK city for FDI in 2023 was Birmingham, which attracted 67 inward investment projects in 2023, an increase of 139% on the previous year. This was Birmingham’s highest FDI performance in a decade and more than twice as high as the total of all other UK cities outside London in 2023.

Birmingham’s success has been driven by its technology sector, with the city seeing a 50 per cent increase in foreign direct investment (FDI) projects in the digital sector in 2023 compared to 2022.

Edinburgh retained its position as the UK’s second-largest city for inward foreign direct investment (FDI) outside London, despite the number of projects falling by 20% year-on-year to 32.

The number of projects in Manchester has fallen by 31%, from 45 in 2022 to 31 in 2023. This means Manchester is now the third best-ranked city in the UK for foreign direct investment outside London – down from first place in 2022 and the lowest position in the last decade.

Glasgow (fourth), Bristol (fifth), Cambridge (sixth) and Leeds (seventh) all saw their FDI projects secured increase in 2023, with Cambridge recording its highest figure in a decade.

Peter Arnold, EY UK Chief Economist, comments: “Technology remains an integral part of the UK investment story and while London continues to dominate, Birmingham and the wider West Midlands saw strong growth in digital investment last year. The West Midlands also benefited from the 2022 Commonwealth Games and the subsequent campaign to boost inward investment, which appears to have had a positive impact on FDI numbers across the region.

“Last year proved to be a difficult year for the North West, with Manchester falling in the rankings after a drop in investment. However, Manchester saw impressive levels of investment in technology in 2022, so this could be a natural drop after a strong year. This does not necessarily reflect a unique problem for the city, with digital foreign direct investment falling across much of Europe in 2023 as tech-investing firms struggled with tighter lending conditions. There is cause for optimism, with the North West being the third best performing UK region outside Greater London for attracting R&D projects, behind the South East and East of England. Local policymakers will be keen to build on these results to attract more high-value, strategically important investment in the future.”

Digital technology remains a key sector for growth in foreign direct investment in the UK

The digital technology sector was the UK’s leading sector for inward investment in 2023 and the largest source of foreign direct investment (FDI) projects for six of England’s nine regions, including Greater London, West Midlands, North West, South East, South West and East of England.

More than half (52%) of the country’s 255 FDI ​​technology projects were located in Greater London, which secured 132 digital projects – a 24% increase compared to 2022. Greater London also remained the leading European destination for digital technology projects, a position it has held for the past decade. The second most popular UK region for digital investment was the West Midlands, which attracted 50 FDI technology projects in 2023 – a 108% increase compared to 2022.

The second largest source of FDI projects in the UK was the financial services sector, with 108 projects secured in 2023. Three quarters (75%) of these projects were located in London.

Business services and media supply were joint third highest ranking sectors for UK FDI, registering 92 projects each in 2023. Greater London was the leading region for business services, securing 42% of the UK national share. Scotland led in media supply FDI, securing 43% of all UK projects, followed by Yorkshire and the Humber and the West Midlands in joint second place with 10% of projects each.

When looking at investment by activity, Scotland was the largest regional recipient of manufacturing projects in 2023 for the third year running, with 45 projects – a 29% increase year-on-year. The West Midlands was the second largest regional recipient of UK manufacturing investment in 2023 with 30 projects – a 58% increase compared to 2022. The South West came third with 13 manufacturing projects. In addition to increases in Greater London and the East of England, there was a decrease in the total number of manufacturing projects in other UK regions and devolved administrations.