EU referendum uncertainty could hit UK investment, consultants warn

The government’s plan to hold an EU referendum will dent foreign investment in the UK and threatens its position as Europe’s top destination for overseas investors, according to a new report.

Consultants EY say their latest research into inward investment showed the UK retained its leading position in Europe last year but that many investors are putting plans in the UK on ice until the referendum on EU membership is out the way.

“The uncertainty caused by a UK EU referendum will be disruptive and is a risk to the UK’s foreign direct investment performance,” according to EY’s UK attractiveness report.
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Of 406 investors surveyed, almost a third, or 31%, said they would either reduce or freeze their planned investments up to 2017. Access to the European market was cited as important for 72% of investors surveyed.

The findings add to an increasingly heated debate among leading business figures as to the merits of staying in or leaving the EU – something prime minister David Cameron has promised to put to a public vote by 2017. Aside from the impact of a vote to leave the EU, business groups are worried about the uncertainty the referendum itself creates in the meantime. More details about the referendum should emerge on Wednesday when the government publishes details of an EU referendum bill in the Queen’s speech.

EY said that for now the UK was in a strong position for attracting investors, having notched up 887 foreign direct investment projects (FDI) in 2014, an 11% increase on 2013. That compared with a 10% rise in the number of projects across the whole of Europe.

The UK increased its market share of all European projects last year to 20.4%, its highest level since 2009, pulling away from Germany – the second most attractive destination for FDI in Europe, EY said.

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Steve Varley, EY chairman and managing partner in UK & Ireland, said: “Global investors have a strong perception of the UK as an attractive place to do business. The relatively positive economic news from the UK, compared with other European countries, the government’s efforts to foster FDI, and the UK’s dynamic labour market are likely contributors.”

The authors also suggest that moves towards greater powers for regions was changing investment patterns. Although London remained the single most important location for FDI in the UK, attracting 381 projects last year, 2014 saw a “resurgence of the English regions” as FDI destinations, EY said.

Yorkshire enjoyed a 140% increase in projects, South East England saw a 49% rise and in the West Midlands they were up 38%.

Mark Gregory, EY’s chief economist, said: “In the midst of glory, London’s share of inward investment stagnated in 2014, whilst English regions made large gains – a trend starkly represented when comparing the market share of ‘new’ projects, which surged in the English regions and devolved administrations, but fell significantly in London.

“There are signs that the UK economy is rebalancing with global investors favouring locations outside of the capital, which is good news for the UK’s overall future performance.”

[“source-theguardian.com”]