Brexit: Damage to UK economy already happening, according to new foreign investment report

The damage long threatened to the UK’s economy by Brexit is already materialising, according to a new report on foreign investment flows.

The EY Attractiveness Report, which tracks investment flows around Europe, shows total inbound UK investment projects for the UK grew 6 per cent in 2017 to 1,205, helped by a 22 per cent increase in digital investments.

But it also noted a “marked increase” in UK outbound investment in 2017, with the trend particularly evident in financial and business services.

The total number of outbound investments was 464 in the year, up 35 per cent on the previous year’s total of 343.

110 of those investments went to Germany, and 79 to France.

According to the accountancy firm’s analysis of announcements, financial services outbound investment projects jumped 93 per cent, from 28 to 54.

Business services outbound projects rose from 117 to 125, up 7 per cent.

That is consistent, said EY, with loud warnings from firms in those sectors that they will have to move jobs and operations to mainland Europe to cope with the regulatory shake-up that leaving the single market likely entails.

“It’s quite a pick up,” said Mark Gregory, EY’s chief economist, referring to the outbound investment project figures.

“If it hadn’t been for the surge of digital, then the overall numbers would look pretty ugly. Lots of these digital projects are quite small. Our core is flat or shrinking.”

Though the UK once again attracted the largest number of inward investment projects, Paris was named by foreign investors surveyed by EY as the most attractive city to invest in, overtaking London for the first time since the survey began in 2004.

The EY report also showed a 26 per cent fall in the number of financial services investment projects coming into the UK, while the total number across the EU rose 13 per cent.

In December 2017, the president of the Confederation of British Industry, Paul Dreschsler, warned that Brexit meant “companies are having to plan for the worst while hoping for the best”.

“They are making choices that will determine new jobs, new plants and new investments in the years ahead.”

EY estimate that the 464 outbound projects will create around 20,000 jobs abroad.

“UK businesses appear to be accelerating their activity to position themselves for a post Brexit environment,” according to the report.

In March 2017, Unilever announced it was moving its headquarters to Rotterdam after more than a century in London, although the company denied this was due to Brexit.

The EY estimates on foreign direct investment are more timely than the estimates from the Office for National Statistics. Projects only appear in the ONS data when investments are completed, which can often be with a lag of several years.

The most recent ONS data showed £36bn of foreign investment outflows in 2016, offset by a record £200bn of inflows, reflecting a small number of very high-value corporate mergers and takeovers completed in that year such as SABMiller, ARM and BG Group.