Sep. 18--Britain suffered a crash in inward investment last year as the credit crunch derailed foreign plans to open new UK factories and purchase businesses.

Overseas firms slashed their spending in Britain from £111bn in 2007 to £59bn in 2008, the biggest fall in absolute terms among top countries surveyed by the United Nations Conference on Trade and Development.

As a result, Britain was toppled from its perch as the world's second-largest recipient of foreign direct investment by France and China. The US held its position at the top of the global table.

The figures confirm the dramatic impact the credit crunch has had on investment flows across the world, as the drying up of credit markets and cash crises push businesses into survival mode.

UNCTAD yesterday forecast global flows of investment will this year tumble to £728bn from £1 trillion in 2008.

The report is particularly worrying here because Britain has long been one of the leading destinations for foreign cash, thanks to its reputation as an open economy with few barriers to deeppocketed investors.

Brian Shaw, an official at UK Trade & Investment, described the developments as " disappointing" but pointed out that foreign exchange movements had unfavourably distorted Britain's performance.

The country suffered a "double hit" as the pound fluctuated and US companies, traditionally the dominant source of overseas cash, slashed spending, he said.

And while the value of investment flows fell, the number of foreign projects in Britain actually rose last year by 30pc to 1,298.

Yesterday's UNCTAD report confirms that the well-documented shift in economic power towards Asia continued unabated despite the downturn.

Between 1999 and 2001 only 21pc of foreign direct investment was captured by developing nations, but that figure surged to 31pc in 2007-08.

China remains star performer, defying last year's downward trend to boost inflows by 30pc to £66bn.

And the People's Republic more than doubled the amount it invests abroad to £32bn as it continued to snap up foreign mines and oil fields and invest in infrastructure.

By contrast, UK companies dramatically curtailed the amount of money they funnelled abroad, more than halving outflows to £67bn.

China's acquisitive approach and growing clout have sent jitters through Western capitals.

Those fears helped derail a £12bn investment by state aluminium firm Chinalco in London-listed Rio Tinto this year -- a deal that would have been Beijing's biggest-ever overseas foray.

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