The UK is losing out on foreign direct investment due to the uncertainty following Brexit vote
The UK is losing out on foreign direct investment (FDI) due to the uncertainty following last year's Brexit vote, according to a new study by accountancy group UHY Hacker Young.
The study, which looked at FDI inflows last year in 45 major economies, found the amount of investment fetched by the UK is lagging behind the global average by 18 per cent.
Britain attracted $50.4bn (£40.3bn), or 1.8 per cent of GDP, worth of FDI last year compared to the global figure of 2.2 per cent of total GDP.
The US, China and Brazil attracted the most FDI in absolute terms at $379bn, $250bn and $75bn respectively in 2015.
Asean economies (Association of South East Asian Nations) were winners of the foreign investment race, attracting FDI worth 5.3 per cent of GDP.
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The research also highlighted that Brazil, Russia, India, China and South Africa [BRIC] attracted total FDI inflows of 2.3 per cent of GDP compared to 1.7 per cent of GDP for the G7.
Overall, Europe saw FDI worth two per cent of total GDP, slightly below the global average. Of the G7, Japan (zero per cent), Italy (0.7 per cent) and Germany (1.4 per cent) were the worst performers.
Colin Jones, partner at UHY Hacker Young: “While BRIC economies are continuing to attract significant amounts of FDI despite the slowdown in emerging markets, the UK and other G7 economies are falling behind.
“Inbound investment by foreign businesses is a sign of confidence in an economy, providing a boost to business growth, job creation and developments in areas such as innovation and infrastructure. Focusing on fostering an environment that encourages foreign investment is key if the UK is to compete on the global stage, particularly in the wake of the Brexit referendum result.”
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Young added that a reducing corporation tax rates may help the UK attract more foreign investment,
“The UK could benefit from making itself a more attractive location for foreign investment. One way to do this would be to consider whether planned reductions in corporation tax rates could be even more ambitious – this is an option to which the government may have to give increasing thought,” he said.
Meanwhile, a separate study from Baker McKenzie found that for the first time since 2013, Chinese investors poured more money into North America ($48bn) than Europe ($46bn).
The study found that the UK attracted $9bn of investment last year, an increase of 130 per cent on 2015. The increase in deals was driven by investments announced before the EU vote. Baker McKenzie said its too "early to judge the impact of Brexit".
"2016 set a new record high for global Chinese investment, with the UK performing particularly well and noticeably up on the previous year," said M&A partner Tim Gee. "Much of that activity was driven by deals announced in the first half of the year, making it a particularly fast start. While Brexit clouds the outlook for 2017 in some sectors, such as financial services, the fundamental drivers for Chinese FDI into the UK and Europe as a whole remain strong."