Fresh euro row as UK inward investment hits record levels

Britain attracted a record level of inward investment last year but an increasing proportion of the spending is going into high technology and internet projects in the South-east at the expense of the UK's traditional manufacturing heartlands.

Britain attracted a record level of inward investment last year but an increasing proportion of the spending is going into high technology and internet projects in the South-east at the expense of the UK's traditional manufacturing heartlands.

The figures from the Government's Invest in Britain Bureau (IBB), showing a 16 per cent increase in the number of new projects and jobs created, intensified the row over the extent to which foreign investors are being deterred by uncertainty over whether the UK will join the euro.

Business for Sterling, the anti-euro pressure group, seized on the figures as proof that membership of the single currency was not a key issue for investors. Nick Herbert, chief executive of Business for Sterling, said: "These figures give the lie to the euro lobby's scare stories, which have focussed on some high profile companies with particular problems - mainly in the car industry. Now we know that these cases were unrepresentative."

But Britain in Europe said there was a danger of the UK's competitive advantage being eroded the longer it stayed outside the euro. Its campaigns director, Simon Buckby, said: "Repeated warnings from exporters and inward investors show there could be trouble in the pipeline."

The Government's top trade official, Sir David Wright, said there was no evidence from the latest figures to suggest that inward investment was being significantly affected by Britain's position on the single currency.

But Sir David, the chief executive of British Trade International, conceded that the strength of the pound was causing difficulties. "We acknowledge that the appreciation of sterling against the euro is a problem. This has considerably distorted the basis on which some companies made calculations about their competitiveness," he said.

Sir David, a former British ambassador to Japan, said the Foreign Office and IBB kept in regular contact with overseas investors and were listening to their concerns and saw no "catastrophe" waiting around the corner. But, privately, IBB officials cautioned that if Britain remained outside the euro zone in the medium term, it would have a serious effect on levels of inward investment.

According to the IBB's figures, Britain attracted 757 inward investment projects last year, compared with 652 in 1998, resulting in total investment of £47.4bn, the creation of 57,783 jobs and the safeguarding of a further 81,411 jobs. Government grant offers totalled £226.2m.

The number of investment projects from Japan increased from 42 in 1998 to 58 last year, despite widely reported warnings from Japanese companies such as Nissan that prevarication over the euro is threatening future investment. The US remained by far the biggest single investor in the UK, accounting for just under half of all new projects and 68,000 of the 134,000 jobs either created or safeguarded.

But the figures clearly show a drift away from big manufacturing projects located in the north of the country towards smaller investments by high-technology companies setting up in the south.

Last year, London and the South-east accounted for 249 projects ,creating 12,595 jobs. The comparative figures for the same two regions in 1998 were 179 projects and 8,723 jobs. The IT, internet, software and telecoms sectors also accounted for by far the biggest share of total foreign investment last year - 205 projects or 27 per cent of the total.