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The publication of the UK’s Foreign Direct Investment results each July is an eagerly awaited event for UK Trade & Investment and its regional partners. This year, the big question was whether the credit crunch would have any impact on the national figures.

The answer is that the tighter financial situation resulting from the crunch has shown signs of impacting on the M&A figures. These have levelled off after four years of steady growth. But this has been offset by a continued strong performance in the area of new projects, and an improvement in the figures for project expansions.

At 1,573, total project numbers are now double what they were at the low point following the collapse of the dotcom boom in 2002/3, an impressive result given strong competition from elsewhere in Europe. The results underpin the UNCTAD figures, published in September 2007, which found that the UK’s inward stock had surpassed US$ 1 trillion for the first time.

Can this growth be sustained, given the less favourable global environment? The drop in M&As (3%) could well signal a further reduction in M&A activity as tighter money obliges companies to postpone M&A plans. Problems raising capital may also inhibit new projects and expansions from key markets such as the US and Europe.

The question is by how much and whether this will be offset by growth from emerging markets. 30% of the projects came from the USA in 2007/8, slightly lower than in previous years. By contrast, India and China accounted for 4.7% and 3.7% respectively.

So it’s hard to believe that the emerging markets will be able to take up much slack if there is a big downturn in US FDI. You don’t have to have a Nobel prize for economics to predict a check in FDI growth this year. A more interesting question is whether the UK will retain its market share, and how the FDI network will respond to the challenging environment. More on that next month.