UK ‘less attractive to FDI’, says Brexit report

If the UK leaves the EU without a withdrawal agreement, both the UK as a whole and Northern Ireland specifically will become less attractive locations for FDI, according to two separate Department for the Economy (DftE) reports into the effects of Brexit effects on the UK and Northern Ireland.

When counting static one-off effects in a no-deal scenario, the number of FDI projects in the UK as a whole, and Northern Ireland, will be lower in the medium to long term by 1.2% and 3% per annum, respectively, says the report.

In the same no-deal scenario, new FDI-related jobs in the UK as a whole, and Northern Ireland, would be 1.1% and 3.6% lower per annum, respectively, the report adds. The largest losses in the number of jobs created in the UK as a whole would be for FDI in manufacturing by non-EU investors.

These downbeat forecasts are exacerbated further if additional dynamic effects associated with previous trade-related productivity growth are considered.

Counting dynamic effects, FDI projects into both the UK as a whole, and Northern Ireland, would be 2% and 6% lower per annum, respectively, says the report, while new FDI-related jobs would be 1.9% and 7.6% lower per annum. The largest loss in the number of FDI projects in the UK as a whole would be in manufacturing by EU investors, the report adds.

The implied cumulated loss of greenfield FDI inflows for the UK as a whole between 2019 and 2030 would be £3.3bn (static effects) and £5.7bn (dynamic effects). FDI inflows in services by non-EU investors are forecast to suffer the largest losses.

To offest the losses, the DftE report suggests reducing the UK corporate tax rate to 13.1% or increasing government expenditures on education to 13.5% of total government expenditure.

Despite dismal forecasts, the UK garnered a record 1278 greenfield FDI projects in 2018, a 18.8% increase on 2017, reports greenfield investment monitor fDi Markets, the source of the 2003-2017 data used in the DftE report. However, as fDi’s February/March cover story explained, London was the only UK administrative region to have enjoyed an increase in announced FDI projects since the invocation of Article 50.

Another report by Ireland’s Economic & Social Research Institute forecast that 80,000 Irish jobs could be at risk in the case of a disorderly no-deal exit when compared with the UK remaining in the EU, while economic growth and wages would be 5% and 1.4% lower over a 10-year period, respectively.

As prime minister Theresa May tussles with MPs to get her deal through the House of Commons, economists’ predictions continue to paint a gloomy picture for a post-Brexit world.