Overseas investment in UK continues to rise

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The Independent Online
Foreign investment in the UK surged for the fifth year running in 1996, according to official figures, although new UK investment overseas fell below the previous year's level. The statistics will comfort those who feared the Asian crisis spelled doom for inward investment prospects. Diane Coyle, Economics Editor, explains.

New direct investment by foreign companies in Britain amounted to pounds 16.1bn in 1996. This was the highest inflow since 1990 - and a pounds 3.4bn increase over the previous year despite the first leg of the pound's rise against other currencies and growing concerns about Britain opting out of the single European currency.

The pattern of flows reveals that European investors have become increasingly more important to the UK compared with both Asian and American investment. Despite their high profile, Japanese and other Asian projects have amounted to only a small part of the total.

The rise took total foreign investment to pounds 139.9bn, and increased foreign companies' earnings in the UK to a record pounds 14.4bn.

Luckily for the balance of payments total, British companies earned much more from their investments overseas. Earnings rose by pounds 3.4bn to pounds 27.3bn in 1996.

However, the rise in new UK investment abroad was 20 per cent lower than the record level it had reached in 1995, at pounds 22bn. This took the total to pounds 209.1bn - still in excess of the value of British assets owned by foreign companies. Britain remained one of the world's biggest outward investors as well as one of the biggest recipients of inward investment.

There was a substantial fall in British investment in North America last year, although investment in other European Union countries and developing countries increased. The Netherlands was the most popular destination for British businesses, followed by France, emphasising the growing importance of the European market.

European companies in turn increased their stake in the UK, led by the Netherlands and Switzerland. New investment by American companies diminished, although the US continued to be the biggest investor with an inflow amounting to pounds 7bn.

Japanese investments in the UK had a book value of just over pounds 8bn at the end of last year, on which Japan earned just pounds 147m during the year. Japanese inward investment has been far lower than, say, Australian investments during the past five years. But 1996 did see a new inflow of pounds 390m from Japan, nearly offsetting a pounds 379m reduction in investment the previous year.

High-profile projects by other individual South-east Asian countries remained too small relative to the total to register in the aggregate figures, but new inflows from all the other Asian countries excluding Japan added up to pounds 319m, well above 1995's increase of pounds 190m. This left their value at the end of last year at pounds 2.5bn, or about the same as the value of Swedish and Danish investments in Britain.