Yorkshire Times
Voice of the North
6:41 AM 22nd June 2020

Yorkshire & Humber Third Most Attractive UK Destination For Foreign Direct Investment

The UK continues to be Europe’s most attractive location for international investment into Financial Services, with 99 projects recorded in 2019, according to EY’s latest UK Attractiveness Survey for Financial Services. While UK project numbers were down 11.6% from the year before (a drop of 13 projects), Financial Services FDI across the whole of Europe fell by 12.6% from 2018, when Europe saw a record number of Financial Services FDI projects driven by firms opening new offices or restructuring in preparation for Brexit.

Financial Services foreign direct investment (FDI) across Europe as a whole was down by almost 13% year on year in 2019
The UK attracted 99 financial services investment projects in 2019; more than double Germany, which came in second with 43
London was the top European city for Financial Services FDI, recording 67 projects in 2019; more than double Paris (29), which secured second place
The US is the leading origin of Financial Services investment in the UK, accounting for almost a third (32%) of all projects

The UK has consistently been the number one location for Financial Services FDI for the last twenty years, and 2019 was the third strongest year in the past decade for UK Financial Services. The UK registered more than double the projects of Germany, which came in second place with 43.

Yorkshire & Humber was the third most attractive UK destination for foreign direct investment (FDI) in Financial Services, behind London and Scotland respectively. Yorkshire & Humber recorded six projects in 2019 (double the total in 2018), moving it into third place (from fourth in 2018); five of these six projects were located in Leeds.

Suzanne Robinson
Suzanne Robinson
Commenting on the report, Suzanne Robinson, EY’s Managing Partner for Yorkshire & Humber, said: “It’s fantastic to see that Yorkshire has risen to the third most attractive UK destination for foreign direct investment in the financial services sector, with Leeds attracting over 80% of the projects within the region.

“With gains also in the digital, business services and machinery & equipment sectors shown in earlier EY research, 2019 was a strong year for Yorkshire & Humber, seeing many modern sectors thriving in the region.

“However, our largest cities continue to account for the lion’s share of activity so we can’t be complacent and need to continue to work hard to ensure the whole region can attract investment.

“The devolution deal for West Yorkshire will help to ensure that we have more power to invest in our towns and communities, and today’s findings show us that more needs to be done to drive economic activity in the financial services sector outside of our core cities and spread the wealth for the benefit of everyone in the region.”

Future attractiveness post COVID-19
Looking ahead, as markets across the globe deal with the impact of COVID-19, investor sentiment suggests that the UK is expected to continue outperforming the rest of Europe in attracting post-pandemic Financial Services investment. Although sentiment is mixed, forty per cent of investors believe the UK will be more attractive for Financial Services FDI post COVID-19, compared to just 8% who believe Europe as a whole will be more attractive after the crisis.

Omar Ali
Omar Ali
Omar Ali, UK Financial Services Managing Partner at EY, comments: “The UK has again performed strongly on Financial Services FDI and, crucially, should remain in a good position to continue attracting investment this year, despite the challenges posed by COVID-19 and a weaker economy.

"2018 saw record Financial Services FDI activity in Europe driven by the industry preparing for Brexit, so it was perhaps unsurprising that overall FDI projects in Europe and the UK dropped last year. However, 2019 levels were still the third strongest this decade and the UK has extended its lead over the rest of Europe despite Brexit, which is impressive. Financial Services remains one of the most important sectors supporting and driving economic growth in the UK, and it’s good to see that, thanks to the depth and breadth of our capital markets and the faith people have in our regulatory system, investors have confidence in the sector’s ongoing strength and resiliency.”

The UK extends lead over Germany
The UK maintained its share of FDI projects in Europe (edging up very marginally from 26.6% to 26.9%), and extended its lead over Germany, which had the second highest share of FDI and had been closing the gap in recent years. The UK attracted 99 Financial Services FDI projects in 2019 compared to 43 in Germany. In fact, the number of projects Germany attracted dropped by 38 year on year (with 81 projects recorded in 2018).

France, which has ranked third for the last five years, is now fourth behind Spain. France recorded 38 Financial Services projects in 2019, compared to 52 the previous year, while Spain recorded 40 Financial Services projects in 2019, up from 22 projects in 2018 and 6 projects in 2017.

Out of the 99 UK projects recorded in 2019, 72 were new projects and 27 were expansions. Fourteen were headquarter projects; 76 related to sales and marketing; 5 were R&D projects; 2 were logistics projects and 2 were related to shared services.

Cities: London remains the main centre for Financial Services investment
In the UK, London remains the most attractive destination for foreign direct investment in Financial Services securing 67 projects in 2019. This equated to 68% of all UK Financial Services FDI projects; down from 77% in 2018 but up from 60% in 2017.

Scotland secured the second highest volume of projects – eight (six in Glasgow and two in Edinburgh). Yorkshire & the Humber recorded six projects in 2019 (double the total in 2018) moving it into third place; five of these six projects were located in Leeds. The North West recorded a decline in projects for the second year running and was ranked fourth. Despite London securing more than two thirds of all UK projects, in terms of employment, the largest number of jobs were announced in Scotland with 2,911 (London 806).

London also remains the dominant European city for attracting FDI for Financial Services with 67 projects. Paris is the second most popular city with 29 projects and Madrid third with 24 projects. Dublin attracted 23 projects and Frankfurt, 21 projects.

The year on year trends show that in 2018 Frankfurt had a spike in projects as many firms set up European operations in advance of Brexit (Frankfurt attracted 39 projects in 2018 compared to 21 in 2019). Paris and Dublin remain broadly consistent year on year (they attracted 33 and 22 projects respectively in 2018); and Madrid continues its growth in FS FDI (it attracted 15 projects in 2018 and 3 projects in 2017).

US remains key source of European FDI
The largest source of Financial Services investment into Europe in 2019 was again the US, which accounted for 27% of all Financial Services FDI – up slightly from 24% in 2018. The second largest source was the UK – contributing 19% of projects (68 projects in total).

In terms of investment just into the UK, the US again was the chief source, accounting for almost a third (32%) of all UK Financial Services FDI - equating to 31 projects. The largest investment projects in the UK were also from the US.

Australia and Germany were the joint second largest sources of Financial Services investment into the UK, with 8 projects each. The UK secured 38% of all German financial services investment projects.

What’s important for investors post COVID-19

As for what will influence investors’ future location choices, the liquidity of capital markets and availability of capital is ranked first. This is followed by the safety and security measures introduced to prevent a future major crisis (whether that be a health, environmental or cyber crisis).

Omar Ali concludes: “The COVID-19 crisis will of course impact all geographies and economies – whether to a lesser or greater degree – and no industry is immune. However, as one of the largest Financial Services hubs in Europe, the UK financial sector is well placed to support the recovery effort and drive growth. London’s dominance as the preeminent European financial centre remains unrivalled, and it’s also very encouraging to see other parts of the UK - like Scotland and Leeds - attract significant investment and create thousands of jobs. While it’s unclear at this early stage how future projects will be impacted by the pandemic, investor sentiment from April this year suggests UK Financial services is in a strong position to adapt to the changes and continue to be a leading destination for overseas investment.

“However, we should not be complacent. It is not by accident that the UK is a favoured market within Europe for FS investors – this is the result of decades of work to build and strengthen the sector and, with Brexit negotiations ongoing, this is a critical point in history for Government, regulators and the industry to come together to make sure the UK retains its position as a world-leading centre for Financial Services.”