US investors find UK less attractive after Brexit

For the third consecutive year, US investors have suggested they are less confident in sinking funds into British operations, according to a new poll. Business leaders identified the country’s increasingly strict immigration system, political instability and regulatory uncertainty as their top causes for concern.

The infamous ‘special relationship’ between the US and the UK was first coined by Winston Churchill during the Second World War, to describe the close allyship and cooperation between the two countries. While many residents of the British isles retain an unshakable belief in the solidity of that relationship, however, a new study suggests that that feeling does not necessarily run both ways – at least when doing business is concerned.

Bain & Company polled 79 companies – 56 in the US and 23 in the UK – employing a combined 320,000 people.

The transatlantic survey found that British businesses’ confidence in the US was stable at high levels. Asked how they rated their confidence in the US as a place to do business out of 10, British respondents reported an average confidence rating of 8.4.

Buoyed by the size of the American market – which is still the largest economy in the world – as well as access to capital and the US workforce’s skills base, UK investors found the US was a more attractive innovation hub than the UK. As a result, about three-quarters of UK respondents said they believed they will increase their investments in the US over the next two to three years.

In stark contrast, however, respondents on the other side of the pond found the UK a very different prospect. Bain’s survey found that for the third consecutive year, US investors were less confident in the UK market than the year before. In 2021, the average response was a confidence rating of 7.8 – but that has now fallen to 6.5 in 2023.

Thanks to this, the UK economy is unlikely to see investment rates from the US rise noticeably in the coming years – at least if the 56 firms polled are anything to go by. When asked how they saw their level of investment changing in the next two-to-three years, a little over half said they would increase spending – but the vast majority of that said this would be a modest increase. Meanwhile, around one-in-10 said they would be decreasing investment modestly.

When trying to explain why that might be, it is difficult to get away from the shadow of Brexit. As much as British politicians and businesses would like to regard the country’s exit from the European Union as an issue which has been put to bed, following several years of hectic negotiations, US investors evidently do not see it that way.

Three years after the UK finalised its divorce from the remaining bloc of 27 EU states, US companies have persistent concerns about repercussions from the departure. According to Bain’s findings, the political and trade relationship between the UK and the EU was actually the top priority that US companies wanted the UK government to address to attract investments. Nearly 40% of US respondents said it was the top priority, while a total of 75% of US respondents placed it in their top three. The responses also made it clear that failing to address this was making the UK a less-attractive environment to invest assets in.

When asked whether the UK’s immigration and visa system – which continues to become more hostile to migration following Brexit – was seen as a pro or a con, only 5% of US businesses said it was attractive to them, compared to 23% who saw it as unattractive.

Meanwhile, similar gaps were found regarding political stability – the UK having had three Prime Ministers in the last year, the latter two without an electoral mandate – and regulatory certainty. In the context of Liz Truss’ 49-day spell in 10 Downing Street, it is hard for investors to trust that something made law by one administration may not be undone by another the next.

Jonathan Frick, partner at Bain & Company in London, commented, “While it’s heartening to see the continuing vitality of the relationship between Britain and America, our findings also show important challenges, on both sides of the Atlantic, but especially in respect of US investors’ confidence in the UK. These are a call to action for both governments as well as businesses in the two countries to work together proactively to further strengthen our transatlantic ties.”