• South West records 42 Foreign Direct Investment (FDI) projects in 2021, a 31% increase from 32 in 2020 and up from 30 in 2019 – driven by the UK’s fastest growing major city, Bristol.

• The UK and Europe recovered some ground after 2020’s pandemic-driven decline in FDI projects

• UK recorded 993 inbound FDI projects in 2021 – up 18 projects (1.8%) from 2020’s 975 projects

• UK remains second in the European league table for FDI projects, while France retained top spot; third-placed Germany hosted fewer projects than last year, falling further behind the UK

The South West has outperformed its pre-pandemic levels of Foreign Direct Investment (FDI) in 2021, securing 42 projects across the region – up from 32 in 2020 and 30 in 2019, according to the EY 2022 UK Attractiveness Survey.

South West projects were up by 31% in 2021 with the region seeing its number of FDI-backed projects growing at a faster rate than the rest of the UK. Overall, UK project numbers grew just 1.8% from 975 in 2020 and 993 in 2021. The South West had the UK’s fastest rate of project growth between 2020 and 2021 and had a 4.2% share of all UK projects in 2021, compared to 3.3% in 2020 and 2.7% in 2019.

Bristol was the highest ranked location in the South West of England with 19 projects (up from 12 in 2020 – an increase of 58.3%) and ahead of its decade-long average. Bristol ranked fifth in the leading cities outside of London for investment after Edinburgh (31), Manchester (31), Belfast (24) and Glasgow (19). Swindon (five) also represented the South West in the top-20 non-London locations for FDI projects.

Across the South West, the leading sectors for investment into region in 2021 were digital technology (22) – the highest number of projects recorded in the decade, and more than double the number of projects recorded from the transportation manufacturers and suppliers sector (10). Business services (16 projects) and manufacturing (nine) were the two leading activities in the region, with manufacturing seeing its first project rise since 2017.

Karen Kirkwood, Office Managing Partner at EY in the South West, says:

“The South West has a diverse regional economy and has been a UK FDI success story in 2021. The region has continued to be resilient despite the impact of the pandemic and has delivered a strong performance in high-value sectors like manufacturing and digital technology– which is set to lead the way for future UK FDI growth.

“One thing which is consistently very clear from investors is that the strength of local business networks matters when they’re choosing where to site their projects within a country. Local skills and infrastructure, support from regional development bodies and access to regional grants are also part of the mix too, reinforcing the importance of devolving power and fostering local ecosystems. Building a unique sense of place from in its economy will help the Southwest build their attractiveness to investors.”

UK retains second place in Europe for investment

EY’s report also reveals that the UK has retained second place in its annual ranking of European countries by their ability to attract FDI projects, with investment activity in Europe and the UK beginning its recovery from the pandemic. France held top spot for project numbers for the third year running, although the UK came first in Europe for new projects and led France and Germany on jobs per project.

The UK’s 1.8% improvement in project numbers from 2020 was a return to growth after a pandemic-driven fall of 12% the year before (from 1,109 in 2019).

However, while the UK managed to close the gap to European leader France in 2020 to just ten projects, the number of French FDI projects grew 24% in 2021, from 985 in 2020 to 1,222 – a European record high.

Overall, Europe recovered some ground after the pandemic-driven 13% decline in project numbers recorded in 2020. The continent saw 5.4% growth in 2021, with 5,877 projects recorded (up from 5,578).

Alison Kay, Managing Partner for Client Service at EY UK & Ireland, comments:

“The UK continues to be recognised as a leading destination for inward investment in Europe. Although the gap in the number of projects between the UK and France has widened, there are still many reasons to be optimistic.

“The proportion of investors looking to back projects in the UK is at a record high. Also, the number of ‘new’ projects secured by the UK, which typically generate more jobs and higher levels of investment, was not only up on the year before, but was the highest level in Europe.

“It seems the UK’s focus on attracting greater ‘value’ FDI projects over ‘volume’ is starting to bear fruit, building on the country’s recent successes in Research & Development and digital technology.

“However, there remains room for improvement. Investment into Europe has been shifting from services to manufacturing, a swing which leaves the UK with ground to make up. As we’ve said before, a drive towards ‘green’ manufacturing could help the UK attract investment, while accelerating progress towards sustainability and levelling up goals.”

New projects and investor sentiment are encouraging for the UK – but war in Ukraine is a risk across Europe

The survey reveals that ‘new’ FDI projects represented over three-quarters of all UK projects in 2021 and were up 5% from 2020. The UK matched its decade-high share of new European projects, with one-in-five new projects launched here.

The impact of having a high proportion of new projects can be seen in the jobs data: where job creation was reported, the UK averaged 68 new jobs per project, ahead of Germany (48) and France (38). Reported capital per project was also higher in the UK than it was in France.

Meanwhile, 58% of surveyed investors said they were planning to invest in the UK in 2022, up from 41% last year, and easily the highest level of investment intent ever recorded. By contrast, 53% of respondents said they intended to invest in Europe this year. Seventy-nine per cent of survey respondents feel UK attractiveness will stay the same (30%) or improve (49%) over the next three years – the highest level since the UK’s 2016 referendum on EU membership.

Alison Kay adds:

“While businesses may hope to invest significantly – making up for two years affected by the pandemic – new challenges will always emerge, and competition for FDI remains intense. The UK can’t rest on its laurels and will need to adapt to meet changing investor needs in order to maintain its attractiveness. Positive sentiment means the UK has an optimistic outlook, but investor intentions don’t always translate into investment actions.”

Digital investment projects remain the UK’s FDI backbone, while high value activity success continues

The digital technology sector remains by far the leading sector in the UK overall’s FDI make-up with 345 projects recorded in 2021, up 7% from 2020 (322). Digital tech represents 34.7% of all UK projects compared to 20% of European projects. The UK’s next-largest sector, business services, attracted 94 projects.

The UK’s manufacturing performance continues to show room for improvement, with the 145 projects recorded in 2021 equivalent to a European market share of just 8.2% (having been 12.6% and 183 projects in 2015). More positively, the UK performed well in other high value activities such as Headquarters or R&D projects.

Karen Kirkwood says:

“It’s encouraging that several of the faster-growing and potentially higher-value sectors, such as tech and wellbeing, are among the most positive towards the UK as an FDI location. Despite the UK’s relatively poor manufacturing performance in recent years, two-thirds of manufacturers are looking to invest here in the next year – a figure which rises to four-fifths for the tech sector.

“There are opportunities to expand in other important sectors, too. Investors are increasingly singling out cleantech as an expected driver of future UK growth – although they are still more likely to say cleantech will be a driver of European growth. Investors say the top two growth areas for cleantech in the UK are electric vehicles and battery technology, followed by a wide array of other areas, including heat networks and carbon capture. The scope of the sector and the UK’s active involvement – and, in some cases, leadership – in key parts of it underlines the scale of the opportunity on offer. It’s an opportunity the UK must realise if it is to develop and build new technology, not just deploy it.”

London remains relatively subdued, while Scotland goes from strength to strength

London remains the UK’s – and Europe’s – leading location for FDI, but despite a 2.9% rise in projects from 383 in 2020 to 394 in 2021, the city remains well down on the 538 projects it recorded in 2019. London’s share of the UK market held steady at 39.7% in 2021, having been as high as 48.5% in 2019.

By contrast, several other UK regions or nations either recovered to their 2019 level or bounced back further: Scotland led the way with 122 projects (up 14% from 2021), followed by the South East (82 projects, up 14%) and the West Midlands. By contrast, Yorkshire and the Humber (40 projects, down 27%), the East of England (40 projects, down 26%), Wales (17 projects, down 26%) and the North West (74 projects, down 13%) saw notable year-on-year declines. At a city level, Edinburgh and Manchester (31 projects apiece) were the top non-London performers, although both recorded fewer projects than in 2020.

Reflecting London’s lower number of projects, the proportion of investors describing the city as the UK’s most attractive destination has fallen from 49% in 2019 to 27% this year.

Karen Kirkwood says:

“Levelling-up as a policy idea has cut through, with almost two-thirds of investors we surveyed having heard of it last year. Awareness has turned into engagement this year, with a similar proportion saying levelling-up influences their location decisions and that they’ll look to invest where government support is available – although project numbers are yet to reflect this. Almost three-quarters of manufacturing and wellbeing investors are interested in the opportunities geographic rebalancing offers.”