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

Report found ‘marked increase' in UK outbound investment in 2017, particularly in financial and business services

Economics Editor

Monday 11 June 2018 07:35 BST

✕

What is still needed to complete a deal with the EU?

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.

The biggest issues facing UK on leaving EU

Show all 8

1/8The biggest issues facing UK on leaving EU

The biggest issues facing UK on leaving EU

Post-Brexit immigration

workers sorting radishes on a production line at a farm in Norfolk. One possible post-Brexit immigration scheme could struggle to channel workers towards less attractive roles - while another may heighten the risk of labour exploitation, a new report warns.

PA

The biggest issues facing UK on leaving EU

Customs union

A key point in the negotiations remains Britain's access to, or withdrawal from, the EU customs union. Since the referendum there has been hot debate over the meaning of Brexit: would it entail a full withdrawal from the existing agreement, known as hard Brexit, or the soft version in which we would remain part of a common customs area for most goods, as Turkey does? No 10 has so far insisted that “Brexit means Brexit” and that Britain will be leaving the customs union, but may be inclined to change its position once the potential risks to the UK’s economic outlook become clearer.

Alamy

The biggest issues facing UK on leaving EU

Northern Ireland-Irish border

Though progress was made last year, there has still been no solid agreement on whether there should be a hard border between Northern Ireland and the Republic of Ireland. To ensure borderless travel on the island, the countries must be in regulatory alignment and therefore adhere to the same rules as the customs union. In December, the Conservative Party’s coalition partners, the DUP, refused a draft agreement that would place the UK/EU border in the Irish Sea due to its potential to undermine the union. May has promised that would not be the case and has suggested that a “specific solution” would need to be found.

Getty

The biggest issues facing UK on leaving EU

Transition period

Despite protests from a small number of Conservative MPs, the Government and the EU are largely in agreement that a transitional period is needed after Brexit. The talks, however, have reached an impasse. Though May has agreed that the UK will continue to contribute to the EU budget until 2021, the PM wants to be able to select which laws made during this time the UK will have to adhere to. Chief negotiator Michel Barnier has said the UK must adopt all of the laws passed during the transition, without any input from British ministers or MEPs.

EPA

The biggest issues facing UK on leaving EU

Rights of EU citizens living the UK

The Prime Minister has promised EU citizens already living in the UK the right to live and work here after Brexit, but the rights of those who arrive after Brexit day remains unclear. May insists that those who arrive during the transition period should not be allowed to stay, whereas the EU believe the cut-off point should be later.

Getty

The biggest issues facing UK on leaving EU

Future trade agreement (with the EU)

Despite this being a key issue in negotiations, the Government has yet to lay out exactly what it wants from a trade deal with the EU. Infighting within the Cabinet has prevented a solid position from being reached, with some MPs content that "no deal is better than a bad deal" while others rally behind single market access. The EU has already confirmed that access to the single market would be impossible without the UK remaining in the customs union.

Getty

The biggest issues facing UK on leaving EU

Future trade agreements (internationally)

The Government has already begun trying to woo foreign leaders into prospective trade agreements, with various high profile state visits to China, India and Canada for May, and the now infamous invitation to US President Donald Trump to visit London. However the UK cannot make trade agreements with another country while it is still a member of the EU, and the potential loss of trade with the world's major powers is a source of anxiety for the PM. The EU has said the UK cannot secure trade deals during the transition period.

EPA

The biggest issues facing UK on leaving EU

Financial services

Banks in the UK will be hit hard regardless of the Brexit outcome. The EU has refused to give British banks passporting rights to trade within the EU, dashing hopes of a special City deal. However according to new reports Germany has suggested allowing trade on the condition that the UK continues paying into the EU budget even after the transition period.

Getty

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.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies