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Ernst & Young’s annual Attractiveness Survey, which monitors foreign direct investment into the UK and across the globe, found just 36 per cent of the international companies it interviewed now felt the UK would become more attractive as an investment destination over the next three years, sharply down from 54 per cent a year ago.
The findings echo pessimistic comments by business leaders as well as recent movements in currency markets. A number of opinion polls showing the Remain camp in the EU referendum battle opening a healthy lead against their rivals last week pushed sterling sharply higher against the dollar and the euro. But the pound slipped back on Friday and fluctuations in the options market have shown how jittery investors have become about the impact of a British exit.
This month the heads of 15 leading multinationals, including the chief executives of GE, Airbus, Cisco and Hitachi, warned that uncertainty following a vote to leave the union “could materially affect major international businesses’ future investment decisions”.
Any hit to UK-bound FDI could prove significant.
The EU accounts for £741bn of investment in the UK and just under half of overall investment flows in 2014, with £76bn. A fall in inward investment would affect not just the UK’s growth but also its ability to finance its current account deficit — which most recently reached £33bn, or 7 per cent of gross national product. [...]
It would also be likely to shake the UK from its position in Europe as the most attractive destination for investment in the region. According to EY, the UK took more than a fifth of all FDI projects into Europe last year — 5,083 — and retained its position as the leading recipient of FDI projects, outranking Germany, France and Spain.
The number of projects last year — 1,065 — was the highest since the annual survey began in 1997 and was a fifth higher than the year before. The number of jobs created by this investment grew even more sharply, by more than a third, to 42,000.
Steve Varley, who chairs EY, said the UK’s performance in attracting FDI in 2015 was “nothing short of stellar” and that investors cited the UK’s quality of life, diversity and culture, education, stability of social climate, telecommunications and labour skills among its most appealing attributes.
Whether the UK will hang on to this position seems in doubt.
The number of investors expecting the UK’s attractiveness as an FDI destination to deteriorate over the next three years has tripled from 5 to 16 per cent. By contrast, slightly more than a third were expecting an improvement, down from more than a half last year — and the lowest score since 2010, the first time the question was asked. [...]
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EY's Attractiveness Survey 2016