UK boasts record foreign investment but spectre of Brexit looms

Britain cemented its position as by far the most attractive venue for foreign investment in Europe last year, but a vote to leave the EU in the forthcoming referendum could undermine billions of pounds' worth of future projects.

According to an annual Ernst & Young survey, the UK attracted more than 1,000 new projects last year, the highest number since records began in 1997. This was up by a fifth on the year before and makes up more than a fifth of all new investment into Europe overall.

Some 155 global firms also opened headquarters in the UK last year, three times' more than the year before.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

At the same time, there has been "the largest ever decline in investor perceptions of the UK recorded”. The number of overseas companies questioned that see the UK becoming a more appealing place to invest fell from 54 per cent to 36 per cent.

In the main, the survey's authors say this reflects mounting fears that the UK might vote to leave the European Union next month, which they believe would result in at least a short-term shock to trade with the country's largest export market.

They say a Brexit victory would particularly hit London's dominant financial services market, which has grown as a result of its dual status as a global hub in its own right and as a portal to a wider Europe. HSBC has warned it could relocate 1,000 jobs to the continent in the event of Brexit, the Financial Times notes.

The UK runs a large current account deficit, meaning it receives less in returns on overseas investments than it pays out. This has prompted Bank of England governor Mark Carney to warn of the perils of Brexit by saying the country is "dependent on the kindness of strangers".

If the UK were to vote to Leave the EU there are fears a large sum of the £76bn a year of inward investment from the EU alone could disappear, widening the £33bn deficit. This would result in a major hit to growth and jobs – the 2015 projects alone support no fewer than 42,000 jobs.

The EU referendum is not the only factor seen to be making the UK less attractive, the Daily Telegraph says. Also highlighted by the survey are "concerns about labour costs, airport capacity and high property prices".