In each of Europe’s top three sectors, the UK’s 2022 market share was well below its average share of the European market over the last decade. While still the highest in Europe, the UK’s 19.8% share of European digital tech projects in 2022 lagged its decade-average of 28.3%; its 9.2% share of business and professional services in Europe is half its average 19.9% share; and the UK’s 12.6% share of transportation and equipment manufacturing was just below its average 14.3% share.
However, in a boost for the nation’s green credentials, the UK reported 37 renewable energy projects in 2022, the second highest in Europe (alongside Spain and behind France on 39).
Positively, breaking down the UK’s FDI projects by activity reveals some high-value successes, with Research & Development (R&D) projects up 14.4% to a record 127 (behind only France on 144, up 8.3%), while 53.8% of surveyed investors plan to increase their UK R&D investments in the next three years. Notably, the UK led Europe on pharmaceutical and medical devices R&D centres (28 projects), with almost double the number of projects than second-placed France (15).
Meanwhile, projects to set up new corporate headquarters in the UK were down only 2.2% to 133, while manufacturing continued its recent rally, growing 20.7% to reach 175 projects – and bringing the UK’s share of European manufacturing FDI (10%) back in line with its average share of the market over the last decade (10.3%).
Peter Arnold adds: “The UK has seen gains in precisely the kinds of activities, high up in global supply chains, that policymakers have been seeking to promote. Manufacturing, R&D, and logistics are all up, while sales and business services activities are down. Policymakers will need to ensure that the high value-add investment is capitalised on further down the supply chain too though.
“There are still areas where the UK needs to catch-up on value. For example, only one-in-five UK industrial projects are linked to low-carbon mobility – green automotive and aerospace projects, for example – while this rises to two-in-three for Germany and Spain. That said, investors view the UK favourably on sustainability, with the country polling well on its potential for decarbonising the supply chain, the percentage of renewables in its energy supply, and having an ecosystem of innovative cleantech and sustainability businesses.
“Looking ahead, manufacturing is an activity to watch for both the UK and Europe. UK manufacturing has been slowly recovering from a recent all-time low, but further growth could be constrained by the risk that foreign multinationals will not significantly increase their manufacturing footprint in Europe. The appetite to establish production facilities in Europe is limited by high costs, the energy mix, and competition from the US in the wake of the Inflation Reduction Act."
US & India are the leading sources of UK investment – while the UK is ramping up its own investment in Europe
The United States remains Europe and the UK’s leading source of FDI projects, with the US a more significant investor for the UK than it is for the rest of the continent. One-in-four (24%) UK projects have their origin in the US versus one-in-five (20.8%) for Europe. The UK was the leading recipient for US investment in Europe with 17.9% of all US projects in 2022.
Whereas Germany was Europe’s second largest origin country for FDI (11% of all projects), India was the UK’s second most important source of FDI (8.8% of UK projects), with Germany in third (6.6% of UK projects). The UK accounted for 58.2% of all Indian-backed projects in Europe in 2022, up from 51.2% in 2021.
Peter Arnold comments: “The UK’s FDI origins are evidence of the country’s global approach, which has been particularly important since its departure from the EU. Places like India, Canada and Australia have risen up the list of the UK’s top investors in recent years, with the UK able to leverage strong cultural links to attract investment that isn’t as accessible for European competitors. The UK’s accession to the CPTPP and the potential for new trade deals, including with India, present further opportunities for an increasingly global tilt for the UK.”
For Europe, seven of the top nine leading origins of investment were other European countries, whereas for the UK, five of the top nine countries of origin were outside of Europe. Commonwealth investment continues to be important for the UK, with the UK securing 50% of all Australian projects in Europe and 24.7% of all Canadian projects.
In the other direction, the UK was the third largest source of investment projects into Europe (8.7% of all projects), while the 516 outbound UK projects in 2022 were a record high – up 15.4% from the 447 in 2021, and more than double the 230 outbound projects recorded a decade ago.
Germany and France are the leading destinations for UK investment in Europe, and in both cases the UK instigated more projects in these countries than it received in return – a reverse of the situation pre-2017, with UK businesses now looking to establish operations in the Single Market. While UK businesses undertook 95 projects in Germany in 2022, 61 German businesses launched investments in the UK. The difference was more pronounced for French investments, with 104 UK-backed projects in France and 43 French investments in the UK.
The North sees strong growth in FDI projects as London loses market share
Over half of the UK’s nations and regions attracted more Foreign Direct Investment (FDI) projects in 2022 than they did in 2021, despite a fall in overall projects for the UK. The UK’s 6% decline in FDI project numbers between 2021 and 2022 was driven by falls of 24% in London and 18% in the South East.
London (299 projects) was still home to the most FDI projects out of any UK nation or region in 2022, but its share of all UK projects has fallen to 32% from a high of 49% in 2019.
Scotland (126), the North West (88) and West Midlands (74) recorded the most projects outside London, while the biggest gains in England from 2021 were seen in the North East (33%), Yorkshire and the Humber (28%) and the East Midlands (23%). The North West (19%) and East of England (10%) also recorded double-digit percentage growth.
The English regions joining London and the South East in seeing project declines from 2021 were the South West (down 17%) and the West Midlands (down 5%). The South East is now home to the UK’s fifth highest number of FDI projects, down from third position in 2021. The North West, by contrast, has gone from fifth to third.
The strong results across the North – all three regions saw double-digit growth – were underpinned by resilience in the digital sector and growth across a range of key activities, including manufacturing, sales, research and development, logistics, and headquarters projects. Growth in transportation, manufacturing and digital tech, as well as wider logistics and manufacturing activity, boosted the East Midlands, while a strong performance in pharmaceuticals and research and development helped growth in the East of England.
Meanwhile, declines in the digital sector were the biggest drag on performance for the South of England. Digital projects in London almost halved from 194 in 2021 to 107 in 2022, with significant falls also seen in the South East and South West.