London defies the trend: digital investment grows 5%, cementing its position as Europe's tech investment hub.

London's Resilience Amid Global Capital Divergence

In 2025, the global foreign direct investment (FDI) landscape shows significant divergence. According to the latest EY European Investment Monitor, the total number of FDI projects across Europe declined for the second consecutive year, as investors became cautious amid trade uncertainty and geopolitical risks. However, London bucked the trend, reporting a 5% year-on-year increase in total FDI projects. The city particularly excelled in the digital technology sector, securing 85 tech-related FDI projects to rank first among European cities—almost double the 42 projects of second-place Paris.

This contrast is no coincidence. Over the past five years, London has attracted a cumulative total of 616 tech-related FDI projects, more than double that of Paris over the same period, continuously strengthening its long-term dominance. From a global perspective, the UK ranked second in Europe with 730 FDI projects (behind France's 852), and London contributed a significant proportion of high-value digital investments. This reflects that capital is concentrating in hub cities with deep ecosystem advantages, rather than being evenly distributed across the European continent.

Switching Growth Engines: From the French Model to the London Path

In recent years, France has attracted manufacturing and logistics investments through tax incentives and administrative reforms, allowing it to lead Europe in total FDI volume. However, London's differentiated competitiveness lies in its service economy and digital innovation. EY analysis points out that "access to talent, ease of financing, and London's role as the engine of the UK's service economy" are its key advantages. In the global battle for digital investment, these soft strengths hold greater long-term appeal than traditional cost or subsidy advantages.

Notably, in 2025 the UK recorded 155 FDI projects in technology and IT services, accounting for approximately 18% of all such projects in Europe, ahead of France (104) and Germany (102). This leading edge aligns closely with the UK government's modern industrial strategy. The UK has designated technology and professional services as core areas for future national growth, and London serves as a natural laboratory for implementing these strategies. Anna Anthony, EY's UK and Ireland Regional Managing Partner, said: "Despite the significant impact of global trade turmoil on investor confidence, it is encouraging that the UK remains competitive in key industries."

Structural Support for Counter-Trend Growth

London's counter-trend growth in digital FDI is no accident; it results from multiple structural factors working together:

• **Talent Agglomeration Effect**: London has Europe's densest pool of tech talent, with universities, research institutions, and startups forming a virtuous cycle that attracts multinational corporations to set up R&D centers and innovation labs.- **Talent Aggregation Effect**: London has the densest tech talent pool in Europe, with universities, research institutions, and startups forming a virtuous cycle that attracts multinational companies to set up R&D centers and innovation labs.
• **Mature Financing Ecosystem**: As a global financial center, London's venture capital, private equity, and capital markets provide full-cycle funding support for digital enterprises from seed rounds to IPOs.
• **Policy Stability**: Although the UK experienced volatility after Brexit, the government has recently focused on strengthening regulatory certainty and launched the "Modern Industrial Strategy" prioritizing investment in digital infrastructure and AI. EY emphasizes that "enhancing regulatory stability and competitiveness" is critical for guiding capital flows into strategic sectors.
• **Post-Brexit Adjustment Completed**: The equivalence arrangements between the City of London and the EU are gradually being implemented, ensuring the smooth flow of digital services trade and reducing cross-border operational risks.

The Catch-up Dilemma of Other European Cities

Meanwhile, cities such as Paris and Berlin still maintain a certain scale in total volume, but their growth momentum has clearly slowed. In 2025, Paris's tech FDI projects were only half of London's, and overall FDI has declined consecutively. Germany, hit by high energy costs and the pressure of manufacturing transformation, saw FDI projects drop from 733 in 2023 to 548. This indicates that when global capital risk appetite declines, investors tend to choose super hubs with complete ecosystems and strong liquidity rather than scattered distribution.

London's leadership is also reflected in the number of jobs created by FDI. EY data shows that the UK leads Europe in this indicator, with higher local employment efficiency per million pounds of investment compared to France and Germany. For host governments that value job contributions, this further strengthens London's appeal.

Outlook: Long-term Advantages of a Mega City

Looking ahead to 2026 and beyond, London's digital FDI advantages still face challenges: US tech giants scaling back European expansion plans, post-Brexit labor visa restrictions, and the growth of European local tech ecosystems (such as Paris Station F and Berlin Factory) could potentially divert some investment. However, London's moat lies in its irreproducibility – its global English environment, legal system, time zone convenience, and historically accumulated network effects give it a "winner-takes-all" characteristic in digital investment.

EY's research also provides insights for policymakers: rather than a broad-brush approach to pursue the number of FDI projects, it is better to prioritize consolidating the ecosystem of core cities and guide investment towards high-productivity sectors through industrial policies. London's case proves that when global capital becomes conservative, deep specialization advantages can lock in long-term investment more effectively than universally low tax rates.

Overall, London in 2025 is not just "Europe's most favored investment city"; it actually represents a new logic of global capital allocation: in times of uncertainty, capital flows towards certainty; amid decentralization trends, resources concentrate on super nodes. This logic will continue to shape the international investment landscape in the coming years.