The figures from the Office for National Statistics show foreign direct investment (FDI) projects in the UK hit an all-time high in 2021. It marks a significant increase from the previous record of £24.5 billion in 2020 said Rishi Sunak.

Welcoming the data, Sunak said the investment underlined the UK’s status as “one of the best places in the world” for international companies to create jobs and drive economic growth. However, Rishi Sunak some experts warned challenges remain as the UK economy faces rising inflation and the cost of living crisis.

Record foreign investment

The ONS figures reveal there were 1,234 FDI projects in the UK last year, up 11% from 2020. These projects are expected to create or safeguard over 74,000 jobs across Britain.

Technology was the sector that attracted the most foreign capital, with £6.3 billion invested. Manufacturing saw £4.9 billion while business services pulled in £4.6 billion.

The United States remained the largest investor in the UK economy, accounting for £6.3 billion of projects. India (£2.9 billion) and Germany (£2.5 billion) were the second and third largest sources of foreign capital respectively.

London maintained its position as the most popular destination for overseas companies, receiving £11.5 billion worth of FDI projects. The South East (£4.2 billion) and North West (£2.5 billion) regions saw the next largest totals.

‘Vote of confidence’

Reacting to the figures, Chancellor Rishi Sunak said the record foreign investment showed the UK is “continuing to attract global capital and create jobs”. He added that it demonstrated Britain’s “fundamental resilience and competitiveness”.

Sunak said: “These results are testament to the UK’s status as one of the best investment destinations in the world. By creating the right economic environment and backing businesses to innovate and grow, we will continue to attract global capital and create more jobs across the country.”

The Chancellor argued the investment figures were a “vote of confidence” from overseas companies in the UK economy and the government’s long-term economic plan. He said it proved Britain remained “one of the best places in the world for businesses to create jobs and drive economic growth.”

Challenges ahead

However, some experts warned of challenges facing the UK economy that could impact future foreign investment levels. Inflation has soared to a 40-year high of over 11% due to rising energy and food costs.

The cost of living crisis is squeezing household incomes and consumer spending power. There are also concerns that a potential recession could dent business confidence.

Gerwyn Davies, senior labor market advisor at the Chartered Institute of Personnel and Development, said: “While foreign direct investment is welcome, the UK faces significant economic headwinds including rising inflation, a cost of living crisis for households and businesses, and the risk of recession.”

He added that the government must ensure public services and infrastructure are fit to attract and support investment. “This will be crucial to realizing investment’s potential to create good jobs and support sustainable economic growth,” Davies said.

Torsten Bell, chief executive of the Resolution Foundation think tank, also warned of challenges on the horizon. He said the investment figures were “impressive” but added that the UK economy was facing “a uniquely difficult combination of high inflation and weak growth.”

Bell said the government will need to “tread carefully” to avoid making the situation worse. He said ministers must ensure help for households is well targeted and does not further fuel inflation.

Final Remarks

While the record £29.5 billion of foreign direct investment in UK firms is undoubtedly a positive sign, there are significant economic headwinds on the horizon that could impact future investment levels.

Rising inflation, the cost of living crisis, and the risk of recession all threaten to dent business and consumer confidence. The government will need to carefully balance supporting the economy without exacerbating inflationary pressures. Maintaining a competitive tax and regulatory environment will also be crucial to retaining the UK’s appeal to overseas investors. Overall, the investment figures show promise for the future, but challenges remain that Sunak must navigate to ensure sustainable economic growth.