City of London Drew Fewer Foreign Investors in 2020, Report Says

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The City of London’s dominance of international finance is in large part thanks to its unparalleled success at attracting foreign investors. Last year, Covid-19 and Brexit’s endgame saw its advantage over Europe in that sphere shrink to the lowest level this century.

The U.K. secured foreign direct investment for 56 financial services projects last year, compared to 99 in 2019, according to an EY survey about the U.K.’s attractiveness to financial services firms. While that still made the U.K. the most attractive destination in Europe, France was a close second with 49 projects, ahead of Germany’s 37.

While the U.K. still secured a fifth of all financial services FDI into Europe, this was down from 26.7% in 2019, the report said. That’s the narrowest the lead has been since EY started the survey in 2000.

The narrowing gap may fuel anxiety about the City’s ability to continue to capture an outsized share of foreign money now it is unable to offer seamless access to the European Union.

The City of London’s decades-long role as the hub of European finance has been dented somewhat since the U.K. voted to leave the bloc. Banks have shifted assets and jobs across the channel and the continuing uncertainty about its future relationship with the EU means more shifts may happen, potentially undermining one of the pillars of the U.K. economy.

Still, the report said that London could easily bounce back. It remains popular with investors and investment could surge as the world emerges from the pandemic if the U.K. positions itself appropriately. The U.S. was the biggest source of investment into both the U.K. and Europe, accounting for 37% and 23% of the projects respectively.

“It is crucial that now, post-Brexit and looking post-pandemic, U.K. financial services definitively stamps its mark not only within Europe, but also on the global stage, by focusing on FinTech and innovation and becoming a world leader in sustainable finance,” said Anna Anthony, U.K. financial services managing partner at EY.

©2021 Bloomberg L.P.

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