Brexit Fears Yet to Diminish London's Attractiveness for Foreign Direct Investment

What gives the British pound its value? If we set speculation aside, one of the most signficant fundamental drivers of the currency is Foreign Direct Investment.

London and foreign direct investment

The reason sterling is able to withstand the country’s trade deficit is owed to the significant foreign investment the UK attracts.

Trade with global partners does not balance the country's books as the UK continues to import more than it exports, but the deficit is made up by foreign exchange inflows that are invested into the economy.

The debate around the EU referendum and the value of the pound actually rests with how Brexit / no-Brexit will impact on these foreign investments. If this source of currency were to dry up then the pound would find itself notably lower.

Such fears are however not yet seen feeding into sentiment on the UK as an investment desitination according to new research.

In a study of the most promising investment locations in Europe, fDi Magazine – a Financial Times publication – has named London and North Rhine-Westphalia in Germany as respective winners of the European City and Region of the Future 2016/17 titles.

London – which has held the position since 2006 - "is a beacon to investors and has performed particularly well in this ranking, also being named Northern City and Major European City of the Future for 2016/17."

London’s ability to attract the highest number of foreign direct investment (FDI) projects of any European city helped to shape this year’s results, with it bringing in more than 1,600 projects between 2010 and 2014.

Among Europe’s regions, North Rhine-Westphalia performed well in multiple categories, also being named Western European Region of the Future 2016/17 and coming first in the Large European Regions ranking.

Cologne, a large city in Germany’s North Rhine-Westphalia state, ranked second of all large European cities in the Connectivity category. German cities took five of the top 10 places in this category, while the country performed well.

London saw off stiff competition from Paris, which was ranked second, and Dublin in third. Paris was also named Western European City of the Future and ranked second in the Major European Cities category.

France’s Île-de-France, home to capital city Paris, ranked second. It also placed second among all western European regions, while claiming the top spot in the Connectivity category for Large European Regions.

The Spanish city of Barcelona came first in the continent for FDI Strategy. Its policies for attracting investors top fDi’s ranking for major cities, ahead of London and Stockholm.

"These are the most established and high-profile of fDi Magazine's rankings and we are proud to present this year's results. Cities and regions that perform well in our league tables should be proud and we applaud their success," commented Courtney Fingar, editor-in-chief of fDi Magazine.

Software and IT services was the largest sector for inward FDI into London, commanding 40% of all investment in the city, up from 35% in the previous ranking.

Elsewhere, Dublin’s standing improved in the 2016/17 ranking, increasing from fifth position in 2014/15, to third this time. The city is becoming a hotbed for investment in software and IT with the sector attracting more than 45% of all Dublin’s inward FDI between 2010 and 2014.

Munich ranked top for outward FDI, with more companies from the city investing abroad than from Berlin and Frankfurt.

The UK’s South East England region, the most populous of all UK regions, rose nine places on its 2014/15 position to finish in third place overall.

Kiev Oblast in Ukraine had the most cost-friendly labour cost levels of all European regions analysed, across three skills sets, helping it reach the top 10 for Cost Effectiveness among Mid-sized European Regions.

Scotland is the leading region for FDI Strategy in the European Cities and Regions of the Future 2016/17 ranking. The region received the highest number of expansion projects per 100,000 people of all European regions analysed.

North Rhine-Westphalia has ranked second among all large European regions for FDI Strategy, followed by Lombardy in third - the largest region in Italy.

Of all 39 UK local enterprise partnerships (LEPs) analysed, London generated the highest GDP by purchasing power parity (PPP) in absolute terms, as well as per 100,000 people.

Greater Manchester was judged first in the FDI Strategy category for LEPs. The internationalisation strategy in place in the LEP provides three-year plans for target source countries.