7. Investment

brexit-fact-base-london — Photo by Sichon/Shutterstock

Investment is a key driver of future prosperity:
- it creates productive capacity and grows productivity
- domestic investment is called Gross Fixed Capital Formation (GFCF):
  - for the UK more than half is private business investment and the rest pubic sector
- foreign investment is separate and is called Foreign Direct Investment (FDI)
UK is a low-investment nation ranking:
- 28th out of 31 OECD peers
- bottom of the G7 for 24 of the last 30 years
Brexit impact: business investment is estimated to be at least 12-13% lower
In 2024, underlying global FDI flows declined by 11%, continuing a downward trend:
- flows to developed countries fell by 22% in 2024
- FDI plays an important role in UK economy
  - UK ranked 4th globally for FDI inward stock (behind US, EU, China)
  - however, UK is outside the top 20 countries for inward FDI flows
UK’s stock of inward FDI has come mainly from its top trading partners into its main trading sectors:
- in 2024 the top three sources were: EU (36%), US (30%) and rest of Europe (10%)
  - although EU share has dropped from 46% in 2016, it is still a key source of inflows
- top UK sectors (with 79% of FDI stock):
  - financial services (28%)
  - manufacturing (18%)
  - professional services (9%)
  - retail and transport services (9%)
  - administrative and support services (8%)
  - information and communication services (7%)
Brexit impact: value of UK inward FDI flows relative to GDP in 2023 fell for the sixth year running since 2016
Freeports and enterprise zones may attract investment but, in practice, provide limited economic benefits