UK leads Europe in digital FDI growth despite overall decline

The United Kingdom has emerged as Europe's leading destination for Foreign Direct Investment (FDI) in the digital technology sector, according to Ernst & Young's (EY) 2024 UK Attractiveness Survey. The survey highlights a notable increase in the number of digital technology FDI projects in the UK, which outperformed other European countries despite an overall decline in project numbers across the continent.

The report indicates that the UK secured 255 digital technology FDI projects in 2023, representing an 8.9% rise from the previous year. This comprised 26.7% of all such projects in Europe, underscoring the UK's strong appeal in the digital sector. In stark contrast, Europe saw a 19% reduction in total project numbers, reflecting broader economic challenges. The UK's digital FDI performance comes after a challenging 2022, when the country recorded just 234 projects, accounting for 19.8% of Europe's total.

France followed as the second most attractive destination for digital technology FDI, capturing 135 projects. Germany was third with 119 projects. Overall, France retained its position as Europe's leading recipient of FDI projects across all sectors but witnessed a 5% decrease from the previous year, totalling 1,194 projects. Germany experienced a more significant 12% decline, recording 733 projects. On the other hand, the UK was the only country among the top three to see an increase in project numbers year-on-year, securing 985 FDI projects across all sectors.

Peter Arnold, EY's UK Chief Economist, commented on the UK's exceptional performance in the digital sector. He attributed the resurgence in digital investment to the country's established and resilient tech market, which seemed more appealing amidst tightening borrowing conditions globally. "The UK's share of FDI growth this year is largely driven by a resurgence in digital investment, setting it apart from the declining trend in Europe," Arnold stated.

Greater London further solidified its position as the preeminent city for digital technology investment. In 2023, the capital attracted 132 projects, marking a 24.3% increase from the previous year. This made London the top city destination for digital FDI in Europe for the tenth consecutive year, followed by Paris with 47 projects and Berlin with 34 projects.

Rob Atkinson, EY's UK & Ireland Managing Partner for Technology, Media and Telecoms (TMT), highlighted the UK's strengths as a global tech hub. "The UK continues to attract substantial digital technology investment, driven by its innovative startups, world-class universities, and highly skilled talent pool," he noted. Atkinson also emphasised the importance of maintaining a collaborative environment between the public and private sectors to ensure ongoing competitiveness.

The United States was the foremost contributor to the UK's digital technology investment, accounting for 50 projects in 2023. India followed with 36 projects, and Australia was third with 13 projects.

Despite the encouraging signs for the UK, broader FDI trends in Europe reflect underlying economic pressures. The continent recorded a total of 5,694 FDI projects in 2023, a 4% year-on-year decline and the lowest number since 2020. This represents an 11% decrease from pre-pandemic levels in 2019 and a 14% drop from 2017.

The UK's share of all European FDI projects increased to 17.3% in 2023, up from 15.6% in 2022. However, despite improvements in digital technology and overall FDI figures, the UK has faced a general decline in project numbers in recent years compared to its pre-pandemic performance. The total number of projects has remained below 1,000 since 2019, with 220 fewer projects in 2023 compared to the peak in 2017, when the country recorded 1,205 projects.