The IT sector is the biggest growth area for attracting overseas investment into the UK, according to the latest figures from foreign trade body UK Trade & Investment (UKTI).

And with overall inward investment up 14 per cent, the UK leads Europe as the top investment location.

'The UK's continuing success in the IT sector is due to its world class academic talent and favourable R&D environment,' UKTI inward investment chief executive William Pedder told Computing.

The figures are encouraging but there are still challenges, says Nick Kalisperas, director of software and services at IT trade association Intellect.

'More and more countries are becoming e-enabled and attracting that investment so we still need to do more to ensure our education system, infrastructure and so on are driven towards remaining competitive globally,' he said.

According to the government's Skills Strategy Progress Report, published last week, the skills shortage in the IT sector has eased.

In 2001, science and technology professionals topped the league of occupations with skills shortages. But IT has dropped out of the 2003 table altogether.

'UK plc should not just look at short term shortages but should take a much longer view and make sure we can attract investment that comes from having a highly-skilled IT workforce,' said John Eary, head of staff consultancy at NCC Group.

'The nature of the IT industry is that demand will fluctuate and the important thing is building the underlying skills base to facilitate the development of the knowledge economy,' he said.

But a reduced shortage is not all good news, says Karen Price, chief executive of IT sector skills council e-Skills UK.

'Lack of a skills shortage can mean the industry is not doing as well as it could, and when shortages rise it is because the industry is picking up and absorbing people into the marketplace,' she said.

'Employers are saying they are starting to recruit again after the downturn, but there is still no shortage. We have to be careful about not anticipating what will happen in a year when suddenly there are not any people around anymore.'