What will happen to FDI post-Brexit?

August 5, 2016
Nigel Cliffe

FDI graph 1

The above graph shows net Foreign Direct Investment in the Euro area and the UK from 2000 – 2015 in US dollars.

Foreign Direct Investment raises national productivity, and therefore increases output and wages. It stimulates domestic firms to improve through ways such as stronger supply chains and tougher competition. According to UKTI, in 2014 the UK had FDI stock of over £1 trillion, roughly half coming from the EU. The UK is an attractive market for foreign investors because of the ease of access to the EU single markets.

At the time of the crash in 2008 the UK and Euro area had similar FDI rates with the EU $21 trillion ahead of the UK. The crash had clear impact as the following year, the EU’s FDI rose by just under $200 trillion, but the UK’s fell to -$63 trillion; the instability of the recession made foreign investors reluctant to invest in the UK.

Since 2010, the Euro area has seen a fairly steady FDI rate with the UK fluctuating but staying at a reasonably steady rate below the Euro area. But what about net Foreign Direct Investment post-Brexit? If, as many have predicted, the UK is to enter another recession at the hands of Brexit, will we see similar FDI patterns to those of 2008/09?