FDI figures that show the UK enjoyed record breaking inward investment have been branded misleading.
New figures show that 2,213 inward investment projects were secured in 2015-16 – an 11 per cent increase on the previous year.
This led to around 116,000 jobs being created or safeguarded – the second highest number on record, the Department for International Trade said.
However Professor Nigel Driffield of Warwick Business School said that in the period that covers these figures the expectation among political commentators and pollsters was that the UK would vote ‘remain’, and so many potential investors for the year to 2016 may simply have discounted the Brexit factor.
Labour market flexibility is one of the main reasons why the UK remains so successful in attracting inward investment, but that could be significantly impacted by the vote to leave.
“Looking forward, the big unknown is what sort of Brexit we will have. It is clear that the UK’s membership of the single market is a key feature of FDI in the manufacturing sector, as well as in many service sectors including professional services and R&D. What is equally important, however, to many firms is free movement of people. The largest European firms need to be able to relocate key staff without recourse to work permits or quotas.”
Although there are some plus points to the UK leaving Europe from an FDI perspective – currency devaluation, competitive tax regime – the uncertainty created by the vote could be potentially damaging.
“What is clear going forward is that the UK is going to remain open for inward investment, and indeed may have to work a bit harder to attract it at the same levels post-Brexit,” Driffield added.
“However, it is likely that higher proportions of investment coming into the UK will be acquisition of existing assets, and in property, rather than new activity which generates high value jobs. The biggest deterrent to inward investment is uncertainty, so whatever the Brexit deal finally becomes, the sooner that is sorted out the better in terms of the UK retaining its position as a leading destination for FDI.”
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