UK remains top destination for foreign investment but worrying signs gather of Brexit impact

Steve Varley, EY’s UK chairman, warned of a 'significant and worrying deterioration in investors’ longer-term expectations of the UK’s future evolution as an FDI location'

The UK maintained the top spot on the list despite its share of European FDI in 2016 falling from 21 per cent to 19 per cent after a stellar performance in 2015 (PA)

The UK retained its title as Europe’s most attractive location for international investment, but worrying signs emerged of a decline in the country’s appeal after Brexit.

The country secured its highest ever level of inward investment in 2016 beating Germany, France and Spain, according to EY’s research.

A total of 1,144 foreign direct investment (FDI) projects were agreed in the UK last year, an increase of 7 per cent on 2015.

The UK’s share of European FDI in 2016 fell from 21 per cent to 19 per cent after a stellar performance in 2015, which saw a 20 per cent increase in the number of FDI projects.

Asian investors have a particularly positive view of the UK, with 30 per cent saying they intend to invest in the next 12 months, followed by Western Europe (24 per cent) and North America (21 per cent).

In addition, 37 per cent of investors that are already established in the UK plan to invest further in the next 12 months.

However, Steve Varley, EY’s UK chairman, warned of a “significant and worrying deterioration in investors’ longer-term expectations of the UK’s future evolution as an FDI location”.

He added: “Most notably there has been a sharp decline in how global investors rank the UK on key attractiveness criteria such as: quality of life; educational standards; stability and transparency of the political, legal and regulatory environment; transport and logistics infrastructure; and local labour skills, which have all been the major sources of strength for the UK’s FDI proposition in recent years.”

Among global investors surveyed, 32 per cent said they expect the UK’s attractiveness to FDI to improve over the coming three years, while 31 per cent expect it to decline.

Both figures are significantly worse than long-term averages of 53 per cent and 8 per cent respectively. Since March 2016 the share of investors with a negative view of the UK’s medium term prospects for FDI have almost doubled.

Mark Gregory, EY’s chief economist said: “Decisions on the majority of investments made in 2016 would have been made up to three years ago, which helps to explain the UK’s solid performance last year, but signs of a slowdown are on the horizon.”