UK: One-Minute Briefs - UK hangs onto its position as investment hotspot.

UK: One-Minute Briefs - UK hangs onto its position as investment hotspot. - Despite the squealing of exporters over the high pound and Asia's economic crisis, the UK is for the time being hanging onto its position as Europe's top location for inward inve

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Last Updated: 31 Aug 2010

Despite the squealing of exporters over the high pound and Asia's economic crisis, the UK is for the time being hanging onto its position as Europe's top location for inward investment. According to the Invest in Britain Bureau (IBB), the last financial year saw a record 600 inward investment projects, totalling £9.42 billion in capital expenditure. Consultants KPMG have announced a new peak of foreign takeovers of UK companies for the first half of the year, valued at $50 billion (£31.3 billion). So does the country's vaunted flexible labour markets and pro-business environment make it immune to foreign exchange worries or overseas recessions?

Not quite, admit those involved in investment decisions. But they like to argue that such investment, whether in the form of takeovers, greenfield projects or expanding existing production, is for the long term and not governed by today's exchange rate. While some exporters are suffering, investors should think years ahead and be reassured by the Government's commitment to euro convergence. They are also encouraged by a high pound, says Andrew Fraser, chief executive of IBB.

Britain's main attraction for foreign companies is its technological expertise and flexible workforce, says KPMG's Stephen Barrett. It also provides access to Europe's single market and English remains the international business language. The Asian crisis is not as threatening as it might be despite the withdrawal of Fujitsu earlier this year. The Asia-Pacific region accounted for only 2% of UK investment stock at the last count although Japan has been growing in importance in recent years.

If all this sounds like too much good news, others are less optimistic about future investment trends. Ray Barrel, an economist at the National Institute of Economic and Social Research, argues that sterling has been high for two years but the effects of this are only now starting to influence investment decisions. This is particularly true of industries, such as electronics, where margins are already under pressure, agrees George Bennett, director of intellectual and property resources at Motorola and chairman of the Scottish Electronics Forum. 'Look at the closure of the Siemens semiconductor plant if you want an example of the pressures.' Siemens announced the closure of the north Tyneside plant, in which it had invested £800 million, at the end of July.

While Bennett recognises the advantages Britain can offer, he believes they will begin to count for less. He says the main threat to the UK's investment position is increasing worldwide competition - from countries such as Hungary and Poland. Productivity and educational levels are also rising all over the developing world. 'I believe when the euro allows us to compare costs across Europe, we will still be highly competitive,' says Bennett.

Britain may be in for a bumpy ride over the next 12 months, says Ernst and Young's Robert Crawford but he remains upbeat. He believes the UK's structural advantages and the expected growth in European markets will ensure that it remains the most popular location for overseas investors.

He sees no evidence to suggest that Labour policies such as signing up to the EU's Social Chapter and introducing a national minimum wage deter investors.

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