UK foreign investment bounces back

The bounce back was, at least partly, the result of much lower outward FDI earnings being recorded in 2020 due to the coronavirus pandemic. Reuters

Foreign direct investment made a positive contribution to the UK's account in 2021, according to the Office for National Statistics.

Both inward and outward FDI increased in 2021, compared to 2020. Inward FDI is the amount of investment into the UK made by foreign companies, whereas outward FDI is the investment UK-based companies make overseas.

The statistics office also makes a distinction between positions and earnings. Positions are the total value of assets a UK or foreign company owns, while the earnings are the profits those companies make.

In 2021, the value of the UK's inward FDI position was up by £83.1 billion to about £2 trillion (an increase of 4.32 per cent), while outward FDI position increased by £16 billion to about £1.7 trillion (a rise of 0.9 per cent).

The increase in the inward FDI position mainly reflects higher positions with the Americas and non-EU Europe, with the increase in the Americas mostly coming from professional, scientific and technical services with the US.

Three times higher

The value of outward FDI earnings, meanwhile, was almost three times higher in 2021 compared with 2020, rising by £85.1 billion from £49.6 billion, to £134.7 billion.

The bounce back was, at least partly, the result of much lower outward FDI earnings being recorded in 2020 due to the coronavirus pandemic.

While the increase in outward FDI earnings occurred around the world, they were especially strong in the Americas, where outward FDI earnings were four times higher in 2021 than in 2020.

The City of London skyline. Inward FDI position figures mean foreign investors own more than a £2 trillion of UK assets. PA

All this means that the net FDI earnings figure (outward less inward) was in positive territory in 2021 to the tune of £62.9 billion. In 2020, net FDI earnings were minus £6.5 billion.

As such, FDI made a positive contribution to the UK's current account in 2021.

Falling in the long term

However, figures from the UN's recently released World Investment Report show that in 2021, UK FDI accounted for 1.7 per cent of total world FDI, the lowest since records began.

The report also showed that between 2010 and 2021, UK FDI fell by 4 per cent.

Nonetheless, a survey of the world's chief executives by the accountancy and consultancy firm PwC, released at the World Economic Forum meeting in Davos last week, places the UK as the third most important country in the world to do business, behind only China and the US.

The UK has become increasingly important to global chief executives as a destination to grow their profits, giving a boost to inward FDI. In 2020, only 9 per cent selected the UK compared to 18 per cent who selected it in 2023.