Britain’s £18bn deal with Japan: Investment only matters if it reaches British firms

The UK - Japan deal includes advanced technology, clean energy and promised jobs. This headline is large, but the real concern is whether domestic suppliers and workers share the gains.

Photo by Dan Meyers, Unsplash

The UK government announced a package with Japan on 14 June which it says could create around £18bn in economic gains. The largest parts are more than £9bn linked to infrastructure and financial services, and up to £9bn in offshore wind. The package also includes a new technology partnership covering AI, semiconductors and quantum computing, but no separate investment figure has been attached to that part of the deal. 

Timing is important. The UK business investment has fallen by 2.5% in the final quarter of 2025, where transport, information technology and machinery caused the largest negative impact. Britain needs capital from outside its borders, especially in sectors where projects are expensive and take years to develop.

However, the size of this announcement doesn't prove its economic impact. The real question is whether this expected economic gain becomes British productive capacity, or only foreign-funded projects taking place in Britain.

A strong relationship, but not a balanced one

Japan is one of the UK’s most important investors already and at the end of 2024, Japanese foreign direct investment in the UK was worth around £102bn which accounted for 4.8% of the country’s inward investment stock.

Trade between Japan and Britain reached £34.6bn in 2025. While UK exports to Japan fell by 1.7% with imports rising by 7.4%, it left Britain with a £1.9bn trade deficit.

A trade deficit is not automatically a failure. British consumers and businesses benefit from Japanese cars, machinery and technology. But in this article, the trade figures matter because they show that a strong investment relationship does not automatically create stronger British exports or domestic production.

That depends on what the UK produces, how much research takes place here and whether British firms become part of the supply chain. A project owned by Japan could increase output but may not create the wider industrial gains that were promised in the headlines. 

Why British businesses need to be part of the deal

The technology partnership that was included in the plan is aimed at businesses having high barriers to entry. Semiconductor plants, quantum research and large AI systems need specialists to work on, expensive equipment and finance that will last long term. Japanese companies can provide the capital and knowledge that smaller UK businesses would not have been able to build alone. 

A recent report on foreign investment and smaller businesses by OECD says that gains from investments by foreign countries aren't automatic and that productivity benefits depend on links between multinational companies and local firms, as well as the skills, finance and technical capacity available in the area. In fact, the strongest effect appears when smaller firms become suppliers to foreign investors and are then required to improve their technology and method of work. 

Therefore, the government should try to measure more than the total investment figures. It should publish the value of contracts given to British suppliers, the number of apprentices trained and the amount spent on UK research and share of new roles created  outside London and the South East. 

Offshore wind will be the clearest test

Having a £9bn package linked to offshore wind could strengthen energy security in the UK, while creating long term work in engineering construction and maintenance.

However, a wind farm built in British waters is also not an automatic British industrial success. Components such as turbines, cables and more can be manufactured overseas before being installed in the UK. Britain could receive more clean electricity while missing a lot of the manufacturing gain. 

The investment should be connected to ports, factories and training programmes in areas with the workforce and industrial experience to support it. British suppliers may need help meeting the technical standards and scale demanded by larger international developers. Without that support, contracts are likely to flow to companies already established in global supply chains.

As well as this, the UK’s strict sourcing requirements could increase costs which discourage investment. A better approach would be to set clear targets for using British suppliers and help firms with access to technical support, finance and more opportunities to work with the Japanese investors. 

From announcement to evidence

The UK-Japan plan could be a great opportunity as Japan already has a long record of investing in British industry, and the focus on clean energy and advanced technology matches where Britain needs future growth to come from.

The government should promote less of its £18bn figure as an achievement as some projects may have to be delayed, reduced or changed before the actual investments take place. Even when finance is spent on the investment, the national benefit depends on where jobs, skills and supply contracts are created. 

The deal should therefore be judged by 3 outcomes: whether Britain's exports rise, whether local firms become more productive and whether the investment creates industries which can continue growing without permanent and constant government support. 

Foreign investment can bring the capital Britain lacks, but it cannot replace the need to build the UK’s own manufacturing strength. The £18bn announcement is a strong beginning, but the real benefits will only appear if British firms are given a serious role in delivering it.