Slump in foreign investment leads to euro row

Inward investment into the UK plunged last year, sparking a furious row between supporters and opponents of the European single currency over the cause of the decline.

The Department of Trade and Industry said that the number of new investment projects fell 12 per cent to 764 while the number of jobs created dropped by a half to 34,000.

The pro-euro lobby group Business in Europe seized on the figures from the DTI's inward investment arm, Invest UK, as further evidence of the damage being done by Britain's absence from the single currency.

Lord Marshall, the group's chairman, said: "Inward investors have been warning for years that Britain's isolation from the euro makes us a less attractive location for overseas investment into the European single market. Today's report shows that these warnings were not scaremongering, they are real and they are coming true."

But Business for Sterling, which campaigns against euro membership, maintained that the report proved Britain was thriving outside the single currency, pointing to figures showing that the total stock of inward investment rose 10 per cent last year to a record £351bn. George Eustace, campaign director for the "No" group, said: "Those who said that investment would fall if Britain kept the pound have been proved wrong. Even in a tough year the UK continues to be more attractive than the eurozone."

William Pedder, the chief executive of Invest UK, sought to steer a middle course between the two warring factions, blaming the fall in foreign investment on the global economic downturn. In particular, he highlighted the decline in investment from the US, which traditionally accounts for 40 per cent of the total UK figure. This has been exacerbated by 11 September.

The number of inward investment projects originating from the US last year fell from 420 to 288, with sharpest fall coming in the hard-hit new economy sectors.

Despite the decline in overall project numbers, the Secretary of State for Trade and Industry, Patricia Hewitt, claimed that the UK remained Europe's top inward investment location, attracting twice the level of US investment as its nearest rival, the Netherlands.

The level of investment in sectors most exposed to currency fluctuations, such as manufacturing and the automotive industry, rose last year. There was a 38 per cent increase in inward investment by car manufacturers with BMW, Nissan and Honda all expanding their UK operations.

Minoru Harada, the president of Honda Europe, yesterday called again on Britain to enter the euro, saying that the pound would have to fall 15 per cent against the single currency before the Japanese car maker's UK manufacturing plant at Swindon became profitable. Last year it accounted for the bulk of Honda's ¤307m (£196m) loss in Europe.

Honda has invested more than £1bn in the UK since 1985 ands employs 4,300 staff at the Swindon plant. Mr Harada would not be drawn on whether Honda would raise its UK investment if the pound remained outside the single currency. But it was noticeable that a new expansion plan unveiled yesterday by Honda contains no new investment in the UK.