UK Europe’s most attractive hub for financial services investment

The UK continues to be Europe’s most attractive location for foreign direct investment into financial services, according to new research from EY. The country is currently home to a third of all such projects, growing by 7% over last year.

An FDI is an investment in the form of a controlling ownership in a business, in real estate or in productive assets such as factories in one country by an entity based in another country. The cumulative value of FDIs around the world had fallen steeply in the years before the pandemic – crashing to a decade-long low in 2018 – but has been rebounding rapidly since. In 2021, the level of FDIs had already increased to more than $2 trillion, for the first time since 2016.

The UK is among the leading beneficiaries of that rallying market. Earlier in the year, research from strategy consultancy Kearney found that the UK was the fifth most attractive destination for FDI in the world – behind the US, Canada, Japan and Germany – but a new study from Big Four firm EY suggests that its status might actually be even higher in the financial sector.

Source: EY

According to EY’s researchers, the UK has actually accelerated its lead over other European FDI markets on that front, attracting 108 financial services projects in 2023. That increase from 76 projects in 2022 has seen it boost its market share from 26% in 2022 to 33% by the end of 2023. By comparison, rival markets France and Germany each secured just 12% of Europe’s FDI linked to financial services projects.

Anna Anthony, EY UK financial services managing partner, commented, “The UK didn’t just maintain its lead as the most attractive European financial services market last year, it extended it significantly. Even through challenging macroeconomic conditions and geopolitical uncertainty, the stability of the UK’s financial services sector has ensured foreign investor confidence remains strong.

Across Europe, the total number of financial services FDI projects grew to 329 in 2023 from 292 projects in 2022 – an increase of 13% year-on-year. Showcasing the increasing health of that segment, the growth outpaced overall European FDI project growth, which saw a 4% decline during the same period, and contrasts with other professional services sectors, such as technology and digital and business services, which both experienced year-on-year project number declines of 19% and 27% respectively – in spite of the huge levels of hype around innovations such as artificial intelligence.

Source: EY

Looking ahead, the UK may be positioned to further extend that lead, too. On top of investments from projects which had already sunk capital into the country’s financial sector, Britain was the destination of choice for the largest number of new financial services projects. The UK recorded 85 new financial services projects in 2023, representing a 25% increase from the 68 projects in 2022, and resulting in the UK market share of new financial services projects rising from 32% in 2022 to 36% in 2023 – the highest level in a decade. In comparison, Germany attracted 32 new projects, up from 12 in 2022, and France secured 22 new projects, down from 26 the previous year.

Across the wider continent, the mood was similarly. The number of new financial services projects across Europe reached its highest level since 2019, rising to 233 projects in 2023 from 215 projects in 2022 – a rise of 8%. However, EY warned that the UK and the wider continent could soon be facing competition for FDI from further afield – and will need to adapt quickly.

Anthony added, “Competition is fierce – both from European peers and further abroad – and increasing market attractiveness must be a top priority for both industry and government. Efforts to boost attractiveness should build on our strengths and focus on what matters most to investors; including shaping future frameworks to drive innovation, leading on gold-standard regulation, and attracting the best local and international talent.”