The UK’s recent decline in foreign direct investment (FDI) is not a short blip, it’s a warning that the country must move beyond passive promotion and adopt a focused, accountable industrial and investor strategy.
FDI projects fell 17% in 2024/25 to 1,375 from 1,654 in 2022/23, and excluding expansions and M&A the drop was 22%. That decline translated into roughly 10,000 fewer jobs created in the most recent year. Reversing this trend requires clarity, speed and political ownership.
Investors are responding to a combination of factors that increase cost, delay or reduce expected returns. The expanded national security scrutiny and uncertain interaction with regulatory regimes create friction and unpredictability for projects. Mixed policy signals on pricing, incentives and long‑term support for strategic sectors weaken the UK’s value proposition compared with alternative locations.
Global reshoring and concentrated US incentives have redirected large projects and capital to markets that offer clearer long‑term economics, faster approvals and bigger package deals. These effects raise due diligence costs, delay decisions and reduce the UK’s conversion of interest into landed projects.
Large groups such as Merck have cited a less competitive operating environment when assessing where to place major R&D and manufacturing commitments. Investors prioritise markets that combine predictable regulatory pathways, durable fiscal and pricing frameworks, and sizeable, coherent incentives. Where those elements are absent or uncertain, firms consolidate capital in locations that promise faster returns and scale. High‑profile cancellations amplify investor risk perception, making prompt government action urgent.
These steps convert political intent into institutional accountability, lowering the “policy risk” premium that deters large greenfield projects.
The US has shifted investor calculus by pairing large, targeted incentives with a coordinated federal‑state delivery model and high‑touch commercial diplomacy. The UK should adopt a similarly strategic toolkit: competitive, well‑scoped subsidies for priority industries; deeper collaboration between national, devolved and local authorities to present site‑ready propositions; and sustained bilateral engagement with priority investor markets, especially the US.
A transparent, predictable screening regime that balances security with clear guidance will reduce uncertainty and speed decisions.
A joined‑up strategy increases conversion rates from enquiry to project by removing procedural bottlenecks and improving deal economics. Prioritising R&D and advanced manufacturing boosts wages, skills and productivity through embedded supply chains and knowledge transfer. Successful flagship projects attract follow‑ons, creating clusters that generate permanent competitive advantage and export capacity. The overall fiscal return improves through higher corporate tax receipts, PAYE contributions and indirect supplier growth.
If the government adopts the measures above and holds itself to those targets, the UK will see faster project conversion, higher‑quality jobs and stronger regional development. Embedded FDI lifts productivity through technology transfer and supplier development, strengthens export competitiveness, and improves fiscal balances. A visible, measurable recovery in high‑value inward investment will restore investor confidence and reduce the risk of further capital flight.
The UK still has world‑class universities, skills and entrepreneurial clusters. The difference between potential and delivery today is underperformance in institutional delivery and political focus. A bolder, more proactive and accountable approach to FDI will stop leakage, attract higher‑value projects, and rebuild the UK’s standing as a leading destination for strategic inward investment. The private sector and regional partners are ready to engage; the government must show the equal drive to win.
At Lubbock Fine, we support international businesses navigating UK investment decisions. If you’d like to discuss how these changes may affect your business, we’d be happy to talk.
