Brexit: British Firms
Invest $10B in EU
February 11, 2019
UK government hopes that Brexit will make the UK a better place to do
business, but new numbers from the
Centre for Economic Performance (CEP)
show that the opposite is happening. UK firms are voting with their
money and offshoring new investments to the rest of the EU.
The study finds that the Brexit vote has led to a 12% increase in new
foreign direct investment (FDI) projects by UK firms in EU countries – a
total increase in foreign investment of £8.3 billion. A no-deal Brexit
would further accelerate the outflow of investment from the UK.
This is the first systematic, evidence-based analysis of how the Leave
vote has affected outward investment by UK firms. The findings support
anecdotal evidence that fears about Brexit are causing UK companies to
move investments elsewhere in Europe.
The report, by CEP experts Holger Breinlich, Elsa Leromain, Dennis
Novy and Thomas Sampson, finds:
The Brexit vote has led to a 12% increase in the number of new
investments by UK firms in EU countries.
The estimated increase totals £8.3
billion (over the period between the referendum and September 2018).
To the extent that increased
investment in the EU would otherwise have taken place domestically, this
represents lost investment for the UK.
The data show no evidence of a
‘Global Britain’ effect. There has not been an increase in investment by
firms in OECD countries outside the EU.
Higher outward investment has been
accompanied by lower investment into the UK from the EU. The
referendum reduced the number of new EU investments in the UK by 11%,
amounting to £3.5 billion of
lost investment. This illustrates how the UK is more exposed to the
costs of Brexit than the EU.
The increase in UK investment in the
EU comes entirely from higher investment by the services sector.
Brexit has not affected foreign
investment by UK manufacturing firms. This suggests that firms expect
Brexit to increase trade barriers by more for services than for
manufacturing, perhaps because the government has prioritised the
interests of manufacturing over services in the Brexit negotiations by
focusing on reducing customs frictions, while ruling out membership of
the EU’s single market.
The report’s findings support the idea that UK firms are offshoring
production to the EU because they expect Brexit to increase barriers to
trade and migration, making the UK a less attractive place to do
results show that Brexit has already led to an investment outflow from
the UK of over £8 billion’, said Holger Breinlich. ‘These outflows are
likely to accelerate substantially in the event of a no-deal Brexit.’
‘The economic risk of Brexit is larger on the UK side of the Channel.
British firms feel compelled to invest more in the EU but not the other
way around,’ said Dennis Novy.
Combined with existing evidence that the Brexit vote has already
affected the UK economy through lower real wages, slower GDP growth and
fewer firms starting to export to the EU, the initial signs are that
‘Project Fear’ may turn out to have been ‘Project Reality’.
‘The data show that Brexit has made the UK a less attractive place to
invest’, said Thomas Sampson. ‘Lower investment hurts the economy and
means that UK workers are going to miss out on new job opportunities.’