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The number of foreign direct investment projects in the UK has fallen to the lowest level since records began 18 years ago, highlighting the challenge facing the government as it seeks to revive overseas interest in Britain and spur growth.
In the financial year ending this March, 1,375 FDI projects landed in the UK, according to data published by the Department for Business and Trade on Thursday.
The figure was down 12 per cent from the previous year and the lowest since records began in 2007-08.
Experts pointed to persistent problems such as high energy costs and geopolitical uncertainty as key factors behind the decline.
The continued fall in inward investment is “a worrying sign for the UK”, said Nigel Driffield, professor of international business at Warwick Business School, adding that “high energy prices, and continued global uncertainty have weakened global FDI flows”.
He said it illustrated the need for the newly released industrial strategy, noting that “while the new reset with the EU will help”, the UK’s closer alignment with the bloc was “too late for these figures”.
Foreign investment is a key driver of growth in productivity and living standards, but the number of new projects was down nearly 40 per cent from the peak of 2,265 in the financial year 2016-17.
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Labour’s industrial strategy, a 10-year plan to increase business investment and boost strategic growth sectors, focused on cutting electricity prices for manufacturers, and backed advanced manufacturing and clean energy industries.
The DBT estimated the economic benefit of DBT-supported FDI projects, a subsector of the total, was £6bn in the latest year, up 5 per cent from the previous year, but down from the £7bn in 2021-22.
Calculations for the economic benefit are “based on a mixture of new jobs and capital expenditure,” according to DBT, but it warned that the data “on capital expenditure is not complete due to some foreign investors withholding the information”.
A DBT spokesperson said: “This government knows the power of inward investment and is laser-focused on targeting the highest-impact, job-creating wins across the UK, which is why the value of our FDI projects has gone up over the past year as we seek quality over volume.”
FDI flows data published by the Office for National Statistics and other international organisations can be distorted by individual large mergers and acquisitions. Measures of their value are affected by factors such as changes in company accounts and exchange rate fluctuations.
The government estimated that jobs created through FDI were down 3 per cent, to 69,355, in the fiscal year to 2024-25. This was the lowest since 2020-21, when strict Covid-19 pandemic restrictions were imposed.
The fall in foreign direct investment in 2024-25 “will be disappointing to the government, given its ambition to attract more foreign capital”, said Andrew Wishart, economist at the investment bank Berenberg.
He noted a “tension” between Labour’s growth ambitions and recent cost pressures on employers, such as the increase in the employers’ national insurance contribution, which took effect from the start of April.
Other European countries have also struggled to attract investment, according to the EY European attractiveness survey published earlier in June.
It showed that “weak economic growth, geopolitical turbulence and ongoing high energy prices” caused foreign direct investment in Europe to drop to a nine-year low in 2024, with falls for all the largest economies.
London attracted 31 per cent of all UK new projects, the DBT data showed, despite a 15 per cent year-on-year decline. By contrast, Scotland, Wales and Northern Ireland all registered increases.
But there were widespread declines across sectors and countries of origin. The US, the largest investor in the country, generated 13 per cent fewer FDI projects than in the previous year.
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IT and financial services, the two largest sectors for FDI, respectively recorded a 2.3 per cent and 5 per cent year-on-year decline in new projects, with falls in life sciences, biotechnology and pharmaceuticals
Joe Marshall, chief executive of the National Centre for Universities and Business, said: “The latest data is particularly concerning in high-value, strategically important sectors.”
