London leads European investment despite wider UK decline
London retained its crown as the most attractive destination in Europe for foreign direct investment last year, despite a fall in UK projects and overall numbers across the continent tumbling.
Greater London outperformed both the wider UK and Europe by recording a five per cent year on year increase in foreign direct investment (FDI) projects according to the latest figures from EY.
This marked London as the leading region for investment for the third successive year.
Anna Anthony, EY UK & Ireland regional managing partner, said: “London has been a notable outperformer amid broader European decline, and the capital’s access to talent, financing opportunities and role as an engine room for the UK’s services economy underlines its importance as a national investment asset.
As the Government continues to take steps to prioritise growth, reinforcing regulatory stability and competitiveness will be critical to channelling investment.”
Overall, the UK secured 730 FDI projects last year, a 14 per cent decline from 2024, when 853 projects were recorded.
France ranked top in Europe for the seventh consecutive year, but ultimately recorded a 17 per cent year on year decline, while Germany came third with 548 projects and saw a 10 per cent fall.
As a whole, Europe saw a seven per cent year on year decrease in FDI projects after global economic uncertainty damaged investor confidence, with Peter Arnold, UK chief Economist at EY, noting higher energy prices and “relatively slow economic growth” across the continent.
The downfall
The 5,026 projects recorded across Europe last year marked the third consecutive year of decline, with FDI projects decreasing for five of the last eight years, with Arnold adding that in contrast to the US and Asia, Europe had seen much slower growth.
Arnold said: “If you looked… over the last 10 or 15 years, you see much more rapid economic growth in the US, so much more vibrant, much more buoyant economy.
“You’ve seen [rapid growth] in Asia, as China, India and some of those big emerging markets really, come onto the global stage and European growth is average… So it’s less exciting, I think, for international investors than some other regions.”
The declines came despite an uptick of activity across Southern and Eastern Europe, with Spain, Turkey and Poland all recording rises, but ultimately lower than the top three nations.
The UK also retained its position as Europe’s leading destination for technology FDI last year, securing 155 software and IT projects, but the sector suffered a 3.7 per cent year on year decline, despite accounting for 18 per cent of all tech FDI.
Business and professional services closely followed with the UK securing 153 projects, more than double that of the prior year.
Overall, the UK continues to attract the highest concentration of service-led investment, with technology and professional services accounting for 42 per cent of all UK FDI projects.
While some would be concerned that the rise of AI in the workplace could potentially offset investment, Arnold did not see a cause of concern as the UK is working to compete with tech giants China and the US, with the government working to incentivise talent.
He said: “That’s why investors are coming here…because they know the talent, the startups, the innovation is here.”
New projects
The UK also retained its title as the leading destination for new FDI projects, beating out Germany.
Of the UK’s 730 projects, 474 were new, amounting to 65 per cent of the total, however the total of new projects declined, falling 11 per cent from the prior year.
Meanwhile, Britain led for FDI related job creation, generating 28,867 across projects.
The United States held its position as the largest single source of FDI across the continent, with 943 US originated projects recorded, broadly unchanged from the year before.
The UK remained the leading destination for US investment, with investors drawn in by relatively cheap valuations and higher dividend yields, securing 19 per cent of all US projects.
India was the UK’s second largest source of capital, contributing 10 per cent of all UK projects, as the country looked to plug into the nation’s IT and software capabilities.
Over 15 per cent of all UK software and IT projects originated from India.
Arnold said: “Rapidly expanding economies like India are also becoming increasingly important sources of investment for the UK in key sectors like technology.
“Strengthening economic ties with high-growth partners worldwide may enable the Government to maintain a resilient investment pipeline for the UK while simultaneously driving capital into the high-value sectors.”
Looking ahead to 2026, Arnold does not anticipate a turnaround.
He said: “Sadly, we are likely to have another difficult year. The conflict in the Middle East and the shock that is having on energy prices does represent another economic headwind.
“Europe is going to see growth of maybe 0.8 per cent, 0.7 per cent this year. Back at the beginning of the year, we were hoping to grow 1 per cent, 1.5 per cent.
“So, it’s going to impact growth.”