A recent study conducted by researchers at University College London (UCL) and the London School of Economics (LSE) has estimated that foreign investment into the UK will fall by 37% after Brexit.

This is a marked shift from when the same group of researchers – Nauro Campos and Randolph Bruno from UCL, and Saul Estrin from LSE – predicted pre-referendum in 2016 that FDI would decrease by 25%.


Campos, Bruno and Estrin told fDi that “the deal currently being negotiated is much thinner than previous thought and the costs in terms of foregone FDI have gone up as a result”. 

Over the last 20 years, the UK has been the largest recipient of foreign investment in the EU, with the net value of FDI in 2017 standing at £80.6bn ($105.8bn). 

The UCL and LSE economists say that this success has been in large part due to the access the UK provides to the European single market and opportunities to scale without costly tariffs and cumbersome forms.

“Brexit will undermine such motivation, whereas EU-27 [countries] will still be a conduit of international long-term investors into the single market,” they added.

In the case that no trade deal is struck between the UK and EU, tariffs and quotas will be imposed on exports from both sides in line with World Trade Organisation terms. The Confederation of British Industry, a lobby group, estimates that no-deal would mean 90% of the UK's goods exported to the EU would be subject to tariffs.

On October 16, UK prime minister Boris Johnson further stoked fears of a no-deal Brexit when he announced that “unless there’s a fundamental change of approach, we should go for the Australia solution”, adding that he was preparing for no deal with “a high heart”. 

Post-referendum resilience

While future inward FDI to the UK is likely to be dampened by uncertainty related to Brexit and coronavirus, investors have been broadly undeterred from investing in the UK since the referendum.

Investment monitor fDi Markets tracked 620 more greenfield FDI projects in the UK during the three and a half years after the Brexit vote in June 2016 than in the corresponding period before the referendum.

However, as the UK is amongst the countries with the most unequal distribution of foreign investment in the world, the majority of these additional projects went into London, which accounted for over 45% of projects during the post-referendum period, up from 39% before the referendum.

Outside of London, Lincolnshire recorded a 245% growth in project numbers between the pre- and post-referendum periods, while West Yorkshire saw a rise of more than 70%.However, Scotland has been particularly hard hit, accounting for half of the 10 administrative regions with the largest fall in projects.

The UCL and LSE economists expect these regional disparities to continue after Brexit, claiming that less inbound FDI “would entail limited capacity for the government to spread economic benefits to the UK as a whole”.

Sector and source

Among UK industries likely to see dampened FDI flows due to the UK leaving the single market, the three economists cite the food processing, automobiles, textiles, chemicals and pharma, wood paper and printing sectors.

“What changes most in the case of a no-deal Brexit are not only the potential costs in terms of foregone FDI but also the additional difficulties it creates in terms of specific sectoral channels that can be used to negotiate ways to mitigate these costs over the medium to long term,” they added.

Foreign technology companies continued to show their confidence in the UK during the 42-month period after the referendum, announcing 180 more projects than the same period before the vote. However, again London attracted the lion’s share (more than 65%), while the three most successful cities after the UK capital – Belfast, Manchester and Edinburgh – collectively attracted just 9% of projects. 

Investors from major source markets also continued to show confidence in the UK in the period after the referendum, with German, Australian and US companies each collectively announcing around 50 additional projects post-referendum.

While cross-border greenfield projects in the UK sourced from EU countries rose by 14.6% overall after the referendum, notably French and Finnish companies announced 18 less projects each.