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Why confidence in the UK’s financial sector has hit a five-year high

The UK's attractiveness for financial services investment increased across 2021, suggesting the potential for strong future investment.


In brief

  • 87% of global financial services firms plan to establish or extend operations in the UK in 2022.
  • 90% of global financial services investors think the UK will retain the same level of attractiveness or improve over the next three years.
  • 87% of respondents said the UK offers the right environment for environmental, social and governance (ESG) investment.

Last year brought significant uncertainty and disruption, as the COVID-19 pandemic and emergence of new variants continued to impact families, businesses, and economies across the world. EY’s annual  UK Attractiveness Survey measures market sentiment over time and has tracked shifts in investor confidence through the pandemic. The ever-evolving nature of the virus has meant that conditions have – and continue to – change rapidly, even on a month-to-month basis. Given this, EY conducted a further investor survey in November 2021 to measure if and how the sentiment of global financial services (FS) investors towards the UK’s attractiveness had changed since April 2021. At that point in time, the UK was in a nation-wide lockdown as it began moving through the initial stages of its COVID-19 roadmap and was progressing the vaccine roll-out. In the time between April and November 2021, the UK completed its roadmap and restrictions were eased – which gave way to a rise in infection levels as cases of the Delta variant grew – and the first cases of the Omicron variant began to emerge.

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Financial services investor confidence hits highest level since analysis began

Given the backdrop, it is encouraging to see that FS investor confidence in the UK market has hit a five-year high. In November 2021, an incredible 87% of the global FS firms surveyed said that they plan to establish or extend operations in the UK in 2022 – up significantly from 50% in April 2021, and just 10% in November 2020. In addition, the number of FS investors who think that the UK’s attractiveness will stay at the same high level over the next three years – if not improve – has also increased, from 75% in April to 90% in November 2021. This is the sort of positive news that the industry needs right now, and indicates that many FS investors are looking to the UK’s mature and established financial services market – which offers reliability and stability in times of so much uncertainty and challenge.  

FS firms planning to establish or expand UK operations in 2022
The number of financial services investors with plans to establish or extend UK operations in 2022 climbs to 87% - the highest since 2016 when FS sentiment was first recorded.

The UK offers the right environment for sustainable finance investment

For the first time, investors were asked how important ESG issues were to their board’s investment strategy. The pandemic has driven an increased spotlight on sustainable finance and climate change risk, and this came through in the survey results. Almost two thirds of financial services investors (59%) said that ESG was either the top priority, or within the top three priorities of their board’s investment strategy. Furthermore, it was very encouraging to see that such a high majority (87%) believe that the UK offers the right environment for their ESG investment. The survey results are an indicator of market sentiment and highlight that financial services firms must continue to prioritise this agenda, if not quicken the pace to turn all the rhetoric into reality. This will help to ensure that the sector is at the forefront of tackling sustainability and climate change risk, and offers the right breeding ground for ESG investment.

Geographic rebalancing of the UK economy is more important than ever

Confidence in London as the main recipient of new FS investment has increased, with 54% of financial services firms citing the capital as the most attractive UK region in which to establish or expand operations – up from 31% in April 2021. However, alongside this, the survey recorded a sentiment dip on the regions outside of London, including Scotland which dropped marginally from 15% last April to 13% in November 2021. Whilst London’s ongoing success should be noted, these results indicate that there is much more work to be done from a UK-wide perspective to ensure more of our towns and cities also capture the benefits of incoming FS investment. ‘Levelling up’ is a key focus for financial services firms, and over half of investors (54%) believed that it should be a domestic policy priority for the UK Government to improve the country’s attractiveness in the future.

Business services is now seen as the biggest growth driver in the UK by global financial services investors, and has overtaken the digital economy, which now moves into second place. The financial services sector retains its third-place ranking, a position it has held since 2020.

The pandemic has shifted financial services investor priorities

Across the seven-month period between the two surveys, financial services investors reassessed the factors that would influence them to select the UK or another country for their investment. Given the ongoing impacts of COVID-19, investors are increasingly focused on how governments are responding to and managing the economic effects of the pandemic. Just over half of investors (54%) said that a country’s level of success in addressing the effects of the COVID-19 pandemic is the most important factor when selecting a future location choice (up from 33% in April 2021). The second biggest investor priority is the safety and security measures put in place to prevent a future major crisis – whether that be a health, environmental or cyber crisis (named by 38% of investors, and up from 27% in April 2021). The third priority is the liquidity of capital markets and availability of capital, which has doubled in investor importance from 15% in April 2021 to 33% in November 2021. Perhaps this reflects the difficulties that investors have faced as the global market has been subjected to the economic hardships of the pandemic.

The UK remains well-positioned for continued growth in financial services

 These latest sentiment survey results clearly indicate that the UK is seen as a mature and established financial services market – and one that is offering a market-leading environment for ESG investment - which can be relied upon in times of heightened uncertainty and instability. But the country is facing strong competition from other markets and so, whilst the industry has weathered the effects of the pandemic and Brexit remarkably well, it’s crucial that, going forward, the UK keeps pushing to raise the standards on ESG, improve the skill levels of its workforce and prioritise the 'levelling up' agenda. These will help ensure that it maintains its leading position on the global stage and does not lose ground once uncertainty subsides and the economic recovery reaches new highs post the COVID-19 pandemic.

Summary

To track if – and how – the sentiment of global financial services investors towards the UK’s attractiveness had changed since April 2021, EY conducted an interim survey in November 2021. Whilst this latest survey was conducted before the main onset and social disruption of Omicron, the headline news is that investor confidence in UK financial services increased across 2021 and hit a five-year high, in what looks to be a strong vote of confidence in the UK’s well-established and mature financial services market.


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