The UK remained the number one destination for foreign direct investment (FDI) in Europe in 2018, ahead of Germany and France, with 1,054 projects, its third-highest number of FDI projects in 20 years. However, this was a 13% drop in FDI projects compared to 2017 (1,205 projects) and, according to the latest EY UK Attractiveness Survey, perceptions of the UK as an FDI destination have weakened.

When asked how their investment activity in the UK has changed since the referendum on EU membership, 5% of investors said they had reduced their investment and 5% of investors said they had increased their investment, but this relative balance does not offset the impact on FDI of the 15% of investors who have put their plans on hold. This represents a near doubling from the 8% of investors last year who told EY they had paused activity.

The UK has lost ground in Europe as concerns over the impact of Brexit have reduced the UK’s appeal as a destination for FDI. However, EY says there is time to act, only 6% of investors intend to move assets out of the UK in future but an urgent response is needed to avoid a further weakening of its position in the coming years.

In the meantime the UK remains Europe’s leading FDI destination in 2018. However, the 13% drop year-on-year is a significantly larger fall than the 4% drop overall in Europe. Germany also fell by 13%, largely due to a slump in business services investment. Excluding Germany and the UK, the European FDI market was flat year-on-year.

The UK’s market share of all FDI projects secured in Europe fell slightly from 18% to 17%, having been at 21% as recently as 2015. This is the lowest share achieved by the UK in the two decades EY has been tracking FDI flows.

In the digital sector, the UK’s share fell four points to 23% as project numbers fell 10% from 320 to 288. The UK remains the market leader, but, says EY, action is required to restore the UK’s competitiveness.