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01 November 2018

UK in a Changing Europe: Not Backing Britain: Brexit vote has reduced foreign direct investment to the UK by 19 per cent

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Research finds that overseas investment to the UK may be some 19 per cent lower because of the vote to leave the EU. Despite a buoyant 12 months for the world economy in 2017, inflows of Foreign Direct Investment (FDI) to the UK have continued to decline since reaching a peak in 2015.

For the UK, it is the longest continuous decline in FDI since records began, with the 10 per cent reduction in the number of projects and £1.5 billion reduction in the value of capital investment between 2016 and 2017.

Dr Ilona Serwicka, UKTPO Research Fellow in the Economics of Brexit at the University of Sussex and co-author of the Briefing Paper, Not Backing Britain: FDI Inflows Since the Brexit Referendum said:

“Our research has shown that there has been a considerable drop in FDI since the vote to leave the EU and if the trend is not reversed, there could be serious damage to the UK economy in the medium-long run. This fall in FDI could be due to a temporary adjustment because of the current climate of uncertainty. But it could also indicate a permanent shift away from the UK by foreign investors.”

The UK remains one of the largest recipients of FDI in the world, with almost 1,000 greenfield investment projects in 2017 totalling more than US$33 billion and creating approximately 60,000 new jobs.

But the uncertainty over the UK’s future caused by the EU Referendum result has seen the country lose its status as the largest recipient of greenfield FDI in Europe. In 2017, the UK was overtaken by Germany as the largest European recipient of FDI with France also gaining ground.

In early 2015, a quarter of all FDI projects into the EU28 were destined for the UK. By late 2017, this proportion had fallen to 18 per cent.

In the services sector, which accounts for around three-quarters of the UK economy, the loss of investment is estimated to be as high as 25 per cent. Sectors hit hardest include high-value-added industries such as software publishing, investment management and retail banking with the post-Brexit reduction in FDI putting high-skilled jobs at risk. [...]

Full paper

© UK in a Changing Europe

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