Foreign direct investment into the U.K. fell to its lowest level in seven years, according to a United Nations report released on Tuesday, reflecting investor concerns over the status of the country's economic recovery and potentially hampering its growth.
Foreign direct investment into the U.K was $45.9 billion in 2010, down 35% from 2009, when inflows totaled $71.1 billion, according to the report on global flows, released by the U.N. Conference on Trade and Development in Geneva. That caused the U.K. to fall to seventh from third among the top 20 recipients in the world. The 2010 levels were the country's lowest since 2003, when they hit $16.8 billion..
By contrast, foreign direct investment into other developed countries increased or remained mostly steady. Germany's inflows grew 21%, to $46 billion, and flows into France fell less than 1%, to $33.9 billion. Foreign direct investment into the U.S. grew 49% to $228.2 billion from $152.9 billion.
The report looked at investments such as buildings, equipment, and technology; an interest in or takeover of U.K. companies; and intra-company transfers and other capital flows. Economists say that such investment is valuable for economic growth by bringing new capital, management and technology into a country.
A spokeswoman for U.K. Trade and Investment, the government agency that promotes business, said that the inflow data doesn't capture the whole picture. She pointed out that the market value of cumulative capital investment in the U.K. by foreign enterprises has remained strong despite the decline in incoming investment flows.
In 2010, the market value of such investments in U.K. was $1.086 trillion, which is a slight increase from the previous year's $1.056 trillion, she said. UKTI also pointed out that the UK value has fared better than Europe's as a whole.
Economists say the drop in inflows into the U.K. is significant, however.
"There are concerns that the U.K. recovery has been going more slowly than in the U.S. and Europe, and that is having an impact," said Hafiz Mirza, an economist with Unctad.
The bleak investment numbers were coupled with a dim economic outlook Tuesday, as the British officials reported that the economy grew just 0.2% between April and June amid sluggish industrial output.
The slowing investment into the U.K. presents somewhat of a Catch-22, economists say. Investment flow into the U.K. is down because of its slow growth, yet foreign investment is one thing that could help it grow.
U.K. outflows, or funds leaving the U.K. to be invested abroad, including through takeovers of a foreign target by a U.K. company, saw an even sharper decline in 2010, falling 75% to $11 billion, from $44.4 billion in 2009. This drove U.K. to 27th in terms of foreign investment outflows last year, from seventh in 2009.
Those involved in the report said this was partly due to the weakness of the U.K. pound compared with prior years, making it more expensive for British companies to purchase abroad. In addition, the U.K. is dominated by financial companies, which had driven investment abroad in the past, but have been weaker in the U.K. recently, said Mr. Mirza and others.
The dropoff in outflows could also reflect that some hedge firms and others are dialing back operations in the U.K. or moving out, although Mr. Mirza cautioned that would account for only a small part of the drop.
Geoffrey Owen, a senior fellow at the department of business management at the London School of Economics, said the U.K. has embraced pro-market, foreign-investor-friendly policies since the 1980s and has "benefited tremendously" from this policy.
While the figures do reflect worries about U.K. growth, he said wouldn't be "too alarmed," citing a recent upswing in the interest of foreign firms for U.K. ones, such as some in the utility sector.
The report also showed that foreign investment inflows to all of Europe, including Britain, declined 19% in 2010, to $313 billion.
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