Net foreign investment in British companies fell to a six-year low in 2010, dragged down by a sharp decline in flows from European businesses, data showed on Thursday.
The Office for National Statistics said overseas companies' net investment into Britain fell to 32.8 billion pounds last year, the smallest since 2004 and well below the 49 billion pounds recorded in 2009.
Most of the fall was down to European firms investing less money in British companies. Net flows from Europe fell to 1.8 billion pounds in 2010 from 32.1 billion pounds in 2009, the lowest value since comparable records began in 1988.
The euro zone looks almost certain to enter a recession as it struggles to contain its sovereign debt crisis, while Britain's economy has barely grown in the last year and also looks set to contract in the coming months.
The ONS attributed the low value of net investment from Europe to fewer loans between companies, modest levels of equity capital acquisitions and major disposals, such as the sale by French insurance company AXA of its British life insurance unit.
One possible reason for this change in inter-company debt may be European multinationals looking to strengthen their balance sheets, the ONS said.
In contrast, investment in British companies from the Americas rose to 28.2 billion pounds in 2010 from 16.8 billion pounds in the previous year.
A large part of that was fuelled by flows of equity capital, such as Kraft Foods' takeover of chocolate maker Cadbury Plc and U.S. investment company Kohlberg Kravis Roberts' purchase of Pets at Home, a chain of pet shops.
Net inward investment from Asia rose to 5.1 billion pounds in 2010 from a net disinvestment of 2.3 billion in 2009.
Net direct investment overseas by British companies fell to 23.4 billion pounds in 2010 -- the lowest outflow since 1996 -- from 25.1 billion pounds in 2009.
The biggest increase in outward investment flows in 2010 was to Australia, driven by significant levels of reinvested earnings and a big change in inter-company debt positions.
(Reporting by Peter Griffiths; Editing by Ruth Pitchford)