In 2023, the United Kingdom experienced a notable surge in Foreign Direct Investment (FDI) by Foreign Invested Enterprise recording 985 new projects—an increase of 6% from the previous year. This robust performance positioned the UK as the second-largest recipient of FDI in Europe, capturing a 17.3% share of the continent’s inward investment market, up from 15.6% in 2022. The UK’s FDI growth contrasts sharply with the broader European trend, where overall FDI project numbers fell by 4% year-on-year to 5,694— the continent’s lowest total since 2020.
A Closer Look at UK FDI Growth
The UK’s FDI growth in 2023 was predominantly driven by a resurgence in digital investment. The country secured over a quarter (27%) of all European tech projects, reflecting a significant rebound from a challenging 2022. This resurgence highlights the UK’s position as a leading hub for technology and digital innovation. London, in particular, emerged as Europe’s top region for investment, recording 359 FDI projects in 2023—a 20% increase from the previous year. This performance was bolstered by substantial investments in technology and financial services.
The West Midlands also saw impressive growth, becoming Europe’s seventh-best performing region with 127 FDI projects—a remarkable 72% increase from 2022. Scotland, another notable performer, attracted 142 FDI projects, driven largely by investments in renewable energy, including offshore wind.
Sectoral Insights
Digital technology remains the dominant sector for UK FDI, with the country capturing more than a quarter of all tech-related projects in Europe. In 2023, the UK recorded 255 technology projects, an 8.9% increase from the previous year. Financial services followed as the second largest sector, with over 100 projects. The business services and utility supply sectors were tied for third place, each securing 92 projects.
However, not all sectors experienced growth. Research & Development (R&D) projects fell by 44%, reaching their lowest level since 2016. Manufacturing projects also declined by 14%, and the number of projects for establishing corporate headquarters in the UK dropped by 34%. Despite these declines, the UK maintained a significant market share of European HQ projects, capturing 39.5%—the highest since 2016.
Regional and City-Level Performance
While Greater London, Scotland, and the West Midlands saw significant increases in FDI, other UK regions experienced stagnation or decline. The North of England, in particular, saw a collective 22% fall in FDI projects, with notable declines in regions such as Yorkshire and the Humber, and the North West.
Among UK cities, Birmingham stood out with a remarkable 139% increase in FDI projects, reaching its highest level in a decade. This growth was largely attributed to a surge in digital investment. Edinburgh, Manchester, Glasgow, Bristol, Cambridge, and Leeds also saw varying levels of FDI growth.
Investor Sentiment and Future Prospects
Investor sentiment towards the UK remains strong, with 69% of global investors planning to invest in the UK in 2024—the highest percentage on record. More than half of these investors are planning to invest in London. Despite some concerns over high interest rates and inflation, the UK’s investment attractiveness is expected to improve over the next three years.
The UK continues to be a leading destination for new projects, securing the highest number of new FDI projects in Europe for the past five years. However, the country faces challenges, including the need to address declines in high-value sectors like R&D and manufacturing. Policymakers are encouraged to leverage the UK’s strengths in emerging industries such as life sciences and clean energy, and to ensure that the benefits of investment are distributed across all regions.
Conclusion
The UK’s FDI landscape in 2023 reflects a complex mix of growth and challenges. The country’s ability to attract significant investments, particularly in technology and financial services, underscores its position as a leading European investment destination. However, the decline in certain high-value sectors and regional disparities in FDI performance highlight areas for strategic improvement. As global competition for investment remains fierce, the UK’s focus on enhancing its appeal in key sectors and regions will be crucial for sustaining its positive FDI trajectory in the years to come.
