Bank of America strategist Kamal Sharma argues the British pound is positioned for sustained support as the composition of foreign direct investment into the UK changes. Data from EY indicate a move away from short-term, deal-driven inflows toward greenfield investment and R&D activity, with capital increasingly targeting knowledge-intensive areas.
According to the EY figures cited by Bank of America, sectors attracting this new wave of capital include artificial intelligence, biotechnology and advanced manufacturing. These flows are arriving alongside established investment into the country’s financial services and biotech industries.
Sharma said: "The UK has emerged as an attractive destination for AI-linked inflows on top of well-established financial services and biotech influx from overseas. Whilst this may not immediately translate into a healthier BoP [Balance of Payments] position, it perhaps provides a reason why GBP has been resilient against the backdrop of ongoing political uncertainty."
Bank of America characterizes the current FDI profile into the UK as "structurally better quality" compared with parts of Europe, where the firm says "old industries" continue to dominate investment patterns. The bank highlights that a reduced reliance on mergers and acquisitions should alter the pound’s exposure to global deal cycles.
In the bank’s view, the shift away from M&A dependence "reduces GBP’s short-term sensitivity to global deal cycles but strengthens medium-term valuation through productivity and income." The strategist added that the move toward research and development, manufacturing and other knowledge-intensive activities is expected to underpin the currency over the medium term by boosting income generation and productivity while lowering dependence on volatile M&A flows that have affected the pound in past decades.
While the commentary links the changing character of FDI to improved structural support for the currency, it also notes limits to the immediate macroeconomic impact. The bank’s assessment emphasizes a medium-term horizon for how productivity and income gains from these investments translate into currency valuation.
The analysis points to a potential recalibration in how investors view sterling’s resilience, with sectoral shifts in incoming capital - particularly toward AI, biotech and advanced manufacturing - forming the core of the argument for stronger medium-term fundamentals.