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In the past 20 years, the United Kingdom has reinvented itself as the ideal place to do business in Europe and British companies have been actively building bridges with Asia and North America. Despite threats, all the actors of British economic life are keener than ever to maintain this status as the world’s partner of choice.
Throughout most of the 1990s, for instance, GDP growth in the UK was consistently higher than in the rest of Europe. In 2002, despite a global economic slowdown, the British economy reported growth of 1.8 percent, twice the level recorded in the Euro zone. To a large extent, this has been achieved by creating the right conditions for British and international companies to thrive. Successive governments have introduced a favorable business tax regime, including an effective research and development tax credit, coupled with one of the region’s simplest and most transparent regulatory and bureaucratic environment. The labor force has also been consistently remodelled to become Western Europe’s most flexible. Since taking over much of the responsibility for financial regulation, the Financial Services Authority (FSA) under the chairmanship of Sir Howard Davies, has been highly commended for its work in preserving public confidence despite the high-profile public accounting scandals around the world. The Bank of England has been remarkably successful for the past 10 years in ensuring macroeconomic stability. The official interest rate remained unchanged at 4 percent throughout 2002, and inched down last January to 3.75 percent. The inflation rate, which ran wild in the 1980s, has been brought under control, while unemployment has been stabilized at historically low levels. This has significantly contributed to unlocking the creativity and growth of British companies by providing greater levels of clarity and certainty. It has also added strength to the United Kingdom’s attractiveness in the eyes of foreign investors. Building on key advantages such as the use of the English language and proximity to EU markets, economic authorities have been active in promoting the country as the ideal platform for investment in Europe, with great success. Inward investment in the country rose steadily throughout the 1990s, reaching a peak of close to $130 billion in 2000. Although FDI inflows have fallen since, the UK remains the largest recipient in Europe. London has also reinforced its role as the world’s leading financial centre for international transactions. According to Bank of England figures, close to 500 foreign banks maintained a presence in the City in 2001, compared with fewer than 300 in the United States and 200 in France. Manufacturing investment, in particular in the automotive sector, has been one of the major successes of the past decade. Today, the pharmaceutical and chemical industries are seeing strong interest from foreign investors. The Japanese were among the first to realize the advantages of investing in the UK. The UK-based Toyota, Nissan and Honda facilities are only some of many major investments by Japanese car manufacturers. Verbatim, a subsidiary of Mitsubishi Chemicals, maintains its leadership in European data storage from its base outside London.
In the past few years, this problem has been compounded by the strength of the pound sterling compared with the Euro, the currency in which most of the country’s export transactions are carried out. While the pound has fallen this year, earlier high levels have considerably hurt exporters and made investors think twice before deciding to serve the continent from a base in the UK. In the financial sector, the exclusion of the London Stock Exchange from pan-European alliances has prompted some to anticipate London’s decline as a financial capital in favor of continental bourses. Few expect the country’s status to be significantly challenged, however. A recent survey of foreign banks in London, carried out by the London Chamber of Commerce, revealed that 83 percent expect the City to retain its premier position. Financial markets have been quick to adopt the new European currency, and London is already the world’s major center for Euro-denominated transactions. Public bodies in charge of inward investment, such as the nine regional development agencies set up in 1999, are focusing their efforts on the UK’s unique pool of highly-skilled workers, its leadership in research and development facilities and output. This transformation is paying off, with very substantial projects being recorded in the pharmaceutical and biotechnology sectors. The Confederation of British Industry, which represents the country’s larger businesses, expects Britain to retain a sizeable share of foreign investment into Europe, totalling approximately $60 billion in 2003. The Japanese, in fact, have largely remained committed to investing in the UK. Toyota recently celebrated the tenth anniversary of its plant in Burnaston, while Nissan has announced a major expansion program at its facilities in Sunderland. In the pharmaceutical industry, the major Japanese players are all present in the country, and are gradually becoming a strong voice in the industry. Both ambassador Orita and Makoto Kakebayashi, director general of JETRO (Japanese External Trade Organization) London, are enthusiastic about the continuing trade and investment relationship between the two countries. The UK has achieved a remarkable transformation and created an economic model unique in Europe, which has brought the country stability and prosperity. Global economic conditions, however, are constantly changing and presenting new challenges to confront. There is no doubt that much will change in the next 20 years, but the culture of flexibility which has served the British economy well in the past will remain strong. In this lies the strength of the UK as an investment base.
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Britain's Lord Nelson atop his column looks out over the world's premier business services hub.
Masaki Orita, Japan’s ambassador to the United Kingdom 