UK financial services still top FDI choice

Brexit notwithstanding, the UK retained its top spot for foreign direct investment (FDI) in financial services in Europe last year, according to a new survey.

Foreign Direct Investment
Britain is also expected to continue to outperform the rest of the continent in the post-coronavirus era, according to EY's latest 'Attractiveness Survey for Financial Services'.The survey found that, despite FDI across Europe as a whole declining by almost 13% year-on-year in 2019, the UK attracted 99 financial services investment projects last year, more than twice the 43 recorded in Germany, the second most popular destination in Europe.

The UK should continue to attract investment, despite Covid-19

Almost a third of financial services investment in the UK originated in the US with 2019 representing the third strongest year in the past decade for foreign investment in UK financial services.Omar Ali, UK financial services managing partner at EY, said, “The UK has again performed strongly on financial services FDI and, crucially, should remain in a good position to continue attracting investment this year, despite the challenges posed by Covid-19 and a weaker economy."2018 saw record financial services FDI activity in Europe driven by the industry preparing for Brexit, so it was perhaps unsurprising that overall FDI projects in Europe and the UK dropped last year."However, 2019 levels were still the third strongest this decade and the UK has extended its lead over the rest of Europe despite Brexit, which is impressive."Financial services remains one of the most important sectors supporting and driving economic growth in the UK, and it’s good to see that, thanks to the depth and breadth of our capital markets and the faith people have in our regulatory system, investors have confidence in the sector’s ongoing strength and resiliency.”

UK expected to outperform the rest of Europe

EY found that, as markets across the globe deal with the impact of the pandemic, investor sentiment suggested that the UK was expected to continue outperforming the rest of Europe in attracting FDI.Although sentiment is mixed, said EY, 40% of investors said they believed the UK would remain more attractive for financial services FDI post-coronavirus, compared to just 8% who believed Europe as a whole would be more attractive.The number of FDI projects in German financial services last year was 38 lower than the 81 it attracted in 2018, which was an exceptional year for Frankfurt because of the number of firms setting up European hubs because of Brexit.France, which ranked third between 2013-18, dropped to fourth place behind Spain last year. France recorded only 38 FDI projects in financial services in 2019, compared to 52 the previous year, while Spain recorded notched up 40, up from 22 in 2018 and only six in 2017.

UK FDI projects: a breakdown

FDI in the UK last year represented 72 investments in new projects with 27 being in expansions. Fourteen were headquarter projects; 76 related to sales and marketing; five were R&D projects; two were logistics projects and another two were related to shared services.Not surprisingly, perhaps, London remained the magnet for FDI investment in the sector, securing 67 of the projects in 2019. Scotland attracted the second highest volume of projects – eight (six in Glasgow and two in Edinburgh) - while Yorkshire & the Humber recorded six, five of them in Leeds.Despite London securing more than two-thirds of all UK projects, the largest number of jobs created was in Scotland: 2,911 compared to London's 806.

UK financial services: well placed to adapt to coronavirus challenges

As for the future, Mr Ali said, “The Covid-19 crisis will of course impact all geographies and economies – whether to a lesser or greater degree – and no industry is immune."However, as one of the largest financial services hubs in Europe, the UK financial sector is well placed to support the recovery effort and drive growth."London’s dominance as the preeminent European financial centre remains unrivalled, and it’s also very encouraging to see other parts of the UK - like Scotland and Leeds - attract significant investment and create thousands of jobs."While it’s unclear at this early stage how future projects will be impacted by the pandemic, investor sentiment from April this year suggests UK financial services is in a strong position to adapt to the changes and continue to be a leading destination for overseas investment.“However, we should not be complacent. It is not by accident that the UK is a favoured market within Europe for FS investors – this is the result of decades of work to build and strengthen the sector and, with Brexit negotiations ongoing, this is a critical point in history for government, regulators and the industry to come together to make sure the UK retains its position as a world-leading centre for financial services.”

Read more news and views from David Sapsted.

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