Wednesday, December 15, 2004

And they say economics is boring...

Overseas investment in Britain has plummeted. So is this the fault of the EU, of Britain for not joining the Eurozone, of Labour's tax and workforce policies, of the high cost of UK labour, or is it just because the global economy's a bit screwy at the moment? Either way, overseas companies invested a total of just £12.4bn in the UK last year, down from £16bn in 2002 and the lowest since 1994.

Part of this was due to a 50% fall in European Union investments, a fact which will certainly be picked up on by the anti-EU camp as a further indication that Britain doesn't need Europe, and that European trading is a minor part of the UK economy.

Meanwhile, US investment in the UK increased (which considering our government's continued blind support for the Bush administration is only fair, let's face it), despite overall US overseas investment continuing to decline.

So the anti-EU lot will also jump on this to show that our future lies with our cousins across the Atlantic, rather than those over the Channel. This is despite the fact EU companies still invest more than twice that of American ones in the UK. And, of course, these are the figures from 2003 - before the US dollar got into its current trouble, so American investment is likely to have dropped again once the 2004 figures are released.

How, then, to explain this decline in investment? Well, my gut feeling is that a likely cause of the decline in EU interest is that we have kept out of the Eurozone, but to be honest it's rather hard to tell. For starters, I'm no economics expert, and secondly it's important to remember that 2003 was an incredibly uncertain year - what with various disease epidemics all over the shop, wars being fought and the like.

If this is the start of a trend, it's a worrying one. But because of last year's uncertainties I'd say we should probably take this as an abberation.

And in any case, if the US dollar continues its decline, the UK is set to lose out far more than simply from a drop in investment from our European partners. Much as in the 1920s, America has its financial finger in a lot of investment pies around the world - and we all know what happened when the US economy went tits-up then.

With Bush in the White House for another four years, who's to say what will happen - but his first term hardly gave very encouraging signs for an American economic boom... We could be in trouble, and if the trouble stems from the US then no amount of Gordon Brown "fiscal responsibility" will be able to get us out of this one.

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