- The number of inward FDI projects into the UK increased by 3.3%
- New job creation increased by 57%
- Software and computer services was the leading sector by number of projects and job creation
- Renewable energy was the biggest growth sector by both projects and jobs
- US remains the leading source market by some margin
- London was the leading destination for FDI by projects and jobs
- On a per capita basis, the North East was the leading region by the number of new jobs per capita (and it is also second in terms of number of projects per capita).
Figures from the UK Department for International Trade showing inward investment results for 2021–22 reveal an increase in inbound investment projects into the country. In 2021–22, the UK received 1,589 inbound foreign direct investment (FDI) projects. This was 3.3% higher than the number received in 2020–21. New investments rose by 2.1% to reach 907, but expansions fell by 2.3%, totalling 466 projects. Mergers and acquisitions exhibited the largest growth – going up by 25% year on year.
Projects stagnate while job creation proliferates
Although the increase in FDI projects into the UK was rather subdued, the impact on job creation was much more significant. Despite the number of safeguarded jobs falling from 18,187 to 7,765 (a 57% decline), the number of newly created jobs rose by 53.2%. In 2021–22, 84,759 new jobs were created – a substantial improvement on the 55,319 new jobs created in 2020–21. The number of new jobs created in 2021–22 surpassed the previous peak created pre-Brexit announcement.
Which sectors are driving UK inbound investment?
Software and computer services was the leading sector for foreign investments into the UK. In 2021–22, 304 software and computer services projects were created, up from 264 in 2020–21. However, this was still well below the number received in 2019–20 (390).
Environment, infrastructure and transportation was the second most popular sector in terms of inbound projects. In 2021–22, there were 170 projects recorded. This represented a 45.3% increase from 2020–21. Only the renewable energy sector (140%) saw a higher yearly increase, albeit from a smaller baseline.
Software and computer services was also the leading sector in terms of new job creation. The sector accounted for more than one-quarter (26.4%) of total new jobs created in 2021–22. Environment, infrastructure and transportation, wholesale, and food and drink were other notable sectors in which a high number of jobs were created.
Yet again renewable energy was the leading sector in terms of growth. Inward FDI created 1,464 new jobs in 2021–22, up 154.6% from the previous year. Biotechnology and pharmaceuticals (-29.7%) and electronics and communications (-38.8%) were the only sectors to decline in terms of new job creation. Although the number of wholesale projects fell by 2.9%, the sector could be deemed one of the most important to the UK in terms of new job creation. On average, inward investment in the sector created 93 jobs per project – more than any other sector.
What are the key source markets for UK inbound FDI?
The US remained the leading source market for FDI into the UK, accounting for just under one-quarter (24%) of total projects into the UK and almost one-third (32%) of all new jobs created. However, 2021–22 represented yet another year of falling project numbers. In 2019–20, there were 462 projects created in the UK from US companies, which fell to 389 in 2020–21. The most recent data shows a further 2.6% decline in project numbers.
India and Germany were the next most popular source markets. Both countries exhibited positive yearly growth in project numbers, yet both were short of the number of investments created in 2019–20.
Turkey had the largest yearly growth (80%). This was primarily a recovery as the number of investments from Turkey into the UK fell sharply in 2020–21. The number received in 2021–22 (45) was slightly ahead of that received in 2019–20 (44).
Investments from Turkey create, on average, the most jobs. In 2021–22, 92 new jobs were created per project – more than any other source market.
Where in the UK are companies investing?
London remains the leading destination region for foreign investment in the UK. The UK’s capital received 444 projects in 2021–22. However, this was yet another year of falling investments in the city. In 2019–20, there were 638 projects created, which fell to 492 in 2020–21.
Nevertheless, new job creation in London did rise considerably in 2021–22. The 444 inbound projects created 18,125 new jobs, up 31% from 2020–21. This continues the trend of London receiving larger FDI projects. The number of new jobs created per project in the capital has doubled since 2019–20.
The North West (145 projects) overtook the West Midlands (143) to become the second-largest UK destination region, while the North East saw the largest yearly growth of any region. Its number of projects rose 39% to 71 in 2021–22. Wales, which was one of only two regions to experience positive growth in 2020–21, saw projects fall heavily (-40%) to 43 in 2021–22. London, the South East and the West Midlands also had fewer projects in 2021–22 compared with the previous year.
The North East was the leading region in terms of new job growth in 2021–22, growing by 325% to 5,843. The East Midlands (220%) and Yorkshire and the Humber (165%) also saw FDI job creation more than double. Almost one-quarter (24.5%) of all new jobs in the UK where spread across multiple UK sites. London was the leading region for single-site job creation, accounting for more than one-fifth of all new jobs (18,125).
On a per capita basis, the North East was the principal region in terms of job creation. Just under 2.18 new FDI jobs were created per 100,000 population in the North East, slightly ahead of London (2.01), which ranked second.
By project numbers, London was the clear leading region, with 4.93 projects per 100,000 population. The North East ranked second with 2.65.
Looking ahead at FDI in the UK
The sharp rise in job creation from inward investment is a testament to the strength of the UK. It remains an attractive destination to do business, with an impressive supply of talent and a favourable business environment. On the other hand, the 2021–22 results show another year of falling project numbers. Since the Brexit referendum in 2016, the UK has seen FDI numbers fall. Although the UK is politically strong in global terms, investors are well aware of recent political scandals that reflect badly on its leadership. The Russian invasion of Ukraine is affecting global FDI levels, with expectations that foreign investment will indeed decline in 2022. This, combined with the soaring cost of living, the continued issues surrounding Brexit and the topic of Scottish independence, will affect the UK’s attractiveness to investors.
The UK may well see its FDI landscape change quicker than other countries, with emerging FDI sectors such as renewable energy, battery technology and AI making up a larger proportion of its overall inward investments in the future.