In 1979 the former Conservative Government abolished foreign exchange controls – freeing up the movement of financial capital between the UK and the rest of the world.  This proved to be a momentous decision for the long-term future of the economy. In its wake we have seen a tremendous growth in UK investment overseas and foreign direct investment into the domestic economy.

The UK has proved particularly attractive to overseas investors particularly from North America and Asia.

For the UK, foreign investment has become an integral source of production, employment and income in both manufacturing and service sectors. In UK manufacturing alone, foreign capital accounts for over one fifth of employment, a quarter of output and nearly half manufacturing exports.

We are also seeing a fast growth of foreign investment in the service sector. London for example has by far the largest foreign exchange dealing platform in the world – much of which is provided by foreign banking institutions located within the City.

The expansion of the European Single Market is likely to generate further inward investment flows. European service sector firms are making in roads into the UK banking and insurance sectors and in food retailing and domestic utilities.

The flow of investment is not all one way! UK firms invested a record amount overseas last year – adding to sterling assets held overseas which should generate a flow of investment income back into the UK economy in future years.

A substantial proportion of this investment has come via the global boom in mergers and acquisitions. Vodafone hit the headlines last month when it acquired US mobile phone giant Air Touch. This catapulted Vodafone into a position as one of the UK’s leading listed companies.

Further Reading

Are there regional spillovers from FDI in the UK

Head to head: Inward investment (bbc 3.7.2000)