Foreign Direct Investment in the UK

foreign direct investment uk


The UK continues to rank highly across Europe and the rest of the world for attracting foreign direct investment.

In this overview of FDI in the UK, we look at the different types of investment projects, from who is investing to which sectors and regions of the UK they are choosing to put their money.

We also look at the statutory requirements for foreign direct investment under the UK’s National Security and Investment Act.


What is foreign direct investment in the UK?


Foreign direct investment in the UK, commonly referred to as FDI, is defined as investment in an enterprise operating in a foreign economy, where the purpose of this investment is to have an “effective voice” in the management of that enterprise. In FDI statistics, an “effective voice” is essentially owning 10% or more of a company, where any investment below this is counted as a portfolio investment and, as such, not included in FDI statistics.

Foreign direct investment can be either inward or outward, where inward FDI measures investments made in a country from another country, while outward FDI measures investments made by domestic companies in a foreign economy. In either case, foreign direct investment can cover a number of different forms of financial investment.

Common examples of inward FDI, so from other countries to the UK, could include:

  • an overseas company establishing a branch or subsidiary in the UK, injecting start-up capital, typically referred to as a ‘greenfield’ investment
  • an overseas company buying or selling, either fully or partially, the equity of an existing UK company, typically referred to as M&A (mergers and acquisitions) activity
  • an overseas company putting additional capital into an existing UK subsidiary, or allowing it to retain profits rather than return them to the parent company.

Key statistics on foreign direct investment in the UK


In the House of Commons research briefing, the ‘Foreign Direct Investment Statistics’ report, dated 20 June 2023, considered the latest trends in UK and world foreign direct investment.

FDI statistics measure two different concepts: flows and stocks. The flows measure annual levels of investment on a net basis, while the stocks record the total book value of all existing FDI, inward or outward. For example, in the UK, inward flows would measure the investments of foreign companies in the UK, while outward flows would measure investments made by British companies abroad.

When it comes to foreign direct investment in the UK, the report provides detailed statistics for the UK’s level of inward FDI flows and stocks in 2021, the most recent year for which data is available, as well as any recent trends. This data is taken from the Office for National Statistics release ‘Foreign direct investment involving UK companies: 2021′, and the United Nations Conference on Trade and Development database on bilateral FDI.

For 2021, the FDI inflows for the UK are as follows:

  • the value of foreign direct investment into the UK was -£51.7 billion, down from £34.8 billion in 2020, where negative flows mean outflows of investment exceed inflows
  • the USA was the single largest investor in the UK, with investment of £6.2 billion, although down from £16.9 billion in 2020
  • the Netherlands accounted for the UK’s single largest disinvestment, with net inward investment of -£24.0 billion
  • net investment from the EU was -£24.1 billion, compared to £28.0 billion in 2020, while net investment from Europe as a whole was -£27.6 billion
  • overall, net investment was negative from all continents except Africa, which recorded a positive inward investment flow of £0.3 billion.

However, despite the fact that the UK’s annual inward investment flows were negative for 2021 — in part as a result of the coronavirus pandemic and global recession, with associated disruptions to investment activity — the ONS also changed their methodology for collecting FDI statistics from 2020 onwards and advise caution in comparing FDI data pre and post-2020. It is also important to recognise that data flow can vary significantly from year to year and should always be used with caution, where high FDI flows in previous years can be accounted for by large multinational mergers and acquisitions.

For 2021, the inward FDI stocks in the UK are as follows:

  • the value of the stock of FDI invested in the UK was £2.0 trillion, up slightly from £1.9 trillion in 2020
    EU countries accounted for 34% of the stock of FDI in the UK, down from 37% in 2019, where the EU’s share has fluctuated between 34% and 50% over the last decade
  • the USA, when looking at individual countries, accounted for just over a third of the UK’s inward stock of FDI, slightly below the EU, where the USA’s share of the stock of FDI in the UK has fluctuated between 24% and 34% over the last decade
  • Europe as a whole, including European countries outside the EU, accounted for 48% of the stock of inward FDI in the UK, down from a high of 61% in 2013.

Breaking the data down on UK inward FDI by region, 5 of the 12 regions and countries of the UK experienced positive inward investment flows in 2021. In the context of inward FDI stocks in 2021, London accounted for 45% of the stock, while the South-East of England accounted for 17%, so a combined total of 62% of the UK’s total stock of inward FDI.

In terms of recent global trends since 1990, the UK’s position in the world over this period has fluctuated between fifth and second, while the USA has been ranked first every year. Between 2015 and 2018, the UK was ranked third, behind the USA and Hong Kong, before overtaking Hong Kong to reach second in the world in 2019, before falling back to third in 2020, behind the USA and the Netherlands, and subsequently returning to second in 2021.


How does the UK rate as an attractive investment destination?


Importantly, the statistics recently published by the House of Commons should not be viewed in isolation of other data out there. EY, formerly Ernst and Young, publish a useful annual “attractiveness survey” of foreign investors’ investments in the UK and their perceptions of it as a potential destination for investment. The 2022 UK Attractiveness Survey ‘Adapting to a Changed World’ reported that the UK’s number of inward investment projects increased in 2021 compared to 2020, although they still remained below 2019 levels, as Covid-related restrictions at that time continued to affect inward investment.

Some notable findings within the EY 2022 report include:

  • 58% of investors surveyed for the purposes of the report planned to invest in the UK over the next 12 months, up from 41% in 2020
  • investors’ longer-term sentiments around inward investment plans for the UK were “strong”, as such signalling that investors had moved on from Brexit
  • there had been a sectoral shift in inward investment, with investment in manufacturing projects up, while investments in service sector projects had fallen, a trend reflective of pandemic-induced changes, such as the shift to hybrid and remote-working, reducing the need for physical presence in key service sectors, such as digital and business services
  • More than 60k jobs were created from FDI projects in 2021, the highest level in the past decade
    London remained the UK’s largest destination for inward investment projects, despite falls in its overall share of the UK’s number of inward investment projects, and remained the leading European city for inward FDI projects, with 394 projects in 2021, over two and a half times greater than the number secured by Paris (133) and Madrid (140).

The 2023 UK Attractiveness Survey ‘Navigating through turbulence’ reported that although the UK “still has work to do on international perceptions, addressing some of the fallout from recent political and economic turmoil”, including the impact of Brexit on the UK’s relative attractiveness for some investors, there is continuing strong performance in the UK.

Some notable findings within the EY 2023 report include:

  • total inward FDI projects to the UK fell by 6.4% in 2022, down from 993 to 929 projects, although the UK still ranks second in Europe, behind France, with Germany ranking third
  • although Brexit has had an impact on the UK’s relative attractiveness for some investors, it still ranks third in Europe for perceived attractiveness, behind Germany and France
  • despite the fall in project numbers, the UK secured the highest FDI-related jobs total in Europe, at 46,779, ahead of France on 38,102 and Spain with 39,104
  • the USA remained the biggest investor in the UK, accounting for 23.9% of all UK inward investments, although the USA’s share of investment into the UK has declined since 2019
  • India overtook Germany as the second largest source of inward investment projects, accounting for 8.8% of the total, with the UK securing 58.2% of Indian investment projects in Europe in 2022
    London retained its status as the UK’s #1 location for inward investment projects, despite falls in the number of projects secured compared to 2021, while Manchester and Edinburgh were the most successful cities outside London in securing inward investment projects from overseas. Additionally, all Northern regions, the East Midlands, the East of England and Wales saw FDI project numbers rise by at least 10%.

The recent fall in UK projects appears to reflect the political instability seen throughout much of 2022, together with a medium-term trend since Brexit towards net outbound project investments. Still, the UK performed well on project value, delivering the highest jobs total in Europe, more total jobs and jobs per project than Germany or France, a strong R&D performance, as well as ranking highest in Europe for the most new projects. As such, the quality, rather than quantity, of projects remains a real positive for the UK.

In terms of sectors generating FDI projects in the UK, despite a decline in projects, digital-tech remained in first place as the leading UK FDI sector in 2022, with London remaining Europe’s leading location for digital technology projects by a substantial margin. The finance sector rated second for project numbers, closely followed by business and professional services, where the leading positions of these sectors reflect the UK’s heavily services-orientated economy and traditional strength in financial services.

At a European level, the top three sectors in 2022 were software & IT services, business services, and transportation manufacturers & suppliers.

However, beyond digital technology and other leading sectors, the pandemic has shown the importance of investment in cutting-edge pharmaceuticals and healthcare research, areas in which the East of England are already world-leading. The UK’s pharmaceutical and medical devices R&D projects were also the highest number in Europe. With sustainability and climate change high on the agendas of many overseas investors, clean technology is an increasingly important investment focus, providing the UK with the opportunity to play to its regional strengths. Similarly, expertise in manufacturing and utilities — key sectors in the Midlands, the North and Scotland — will be crucial to enable the UK to establish itself as a place where clean technology is developed and built.


Legal requirements for foreign direct investment in the UK


Importantly, when it comes to foreign direct investment in the UK, new regulatory requirements have been introduced under the UK’s National Security and Investment (NSI) Act which came into force on 4 January 2022. This makes specific provision around foreign direct investment in certain business sectors with the potential to impact on national security, where a new regime creates notification requirements for certain transactions to the UK Investment Security Unit on either the following mandatory or voluntary basis:


Mandatory regime


Mandatory pre-notification requirements apply to entities in key sectors of the economy in respect of transactions involving the acquisition of a 25% stake or more in an entity, or equivalent levels of voting rights, or moving from one level of interest to a higher level of interest, such as 25% to 50%+. The sectors are largely focused on companies whose activities have a close link to UK-government activities, such as entities in the defence sector supply chain or who supply products subject to UK export control. The mandatory regime will also apply to companies who are active in critical industries such as energy asset or communications network operators, as well as companies operational in particularly sensitive industries, such as artificial intelligence.


Voluntary regime


For those transactions which are not notifiable acquisitions, a voluntary regime applies, known as the ‘call-in’ regime. A transaction may be notified voluntarily if the parties are concerned about national security issues arising or, where a transaction is not notified, it can be ‘called-in’ for a national security review by the Secretary of State.

Where the mandatory notification requirements under the NSI Act apply to a transaction, the transaction will require approval from the UK’s Secretary of State, where a transaction closed without clearance will be void. Failure to notify can also result in fines of up to 5% of global revenues or £10m, whichever is greater, and a risk of criminal prosecution.

In either case, both under the mandatory and voluntary regime, NSI notifications can be made online. There is also provision to make a retrospective validation where an acquisition within the mandatory notification regime was completed without seeking clearance. Once a valid application has been accepted, a review period will commence, giving the Secretary of State 30 working days to assess the acquisition and reach a decision to either provide full clearance or to call-in the transaction for a full NSI assessment. This will again last 30 working days, but may be extended by up to 45 working days. However, parties are not prohibited from progressing negotiations of the acquisition whilst the Investment Security Unit conducts its national security review.

Further guidance to assist businesses in the interpretation of the practical application of the final form regulations has been published by the Investment Security Unit. This guidance explains when activities for NSI purposes are caught by the regulations, which sectors are affected, and the circumstances in which activities fall outside of its scope.



Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.

Legal disclaimer


The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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