ABU DHABI (Reuters) - Britain would welcome investments by sovereign wealth funds (SWF) to bolster its economy, Business Secretary Peter Mandelson said yesterday.

Gulf-based investment firms have poured billions of dollars in recent years into businesses ranging from Western banks and stock exchanges to sports clubs and circus troupes.

Britain's economy will shrink by 3.7 percent this year, its fastest pace of decline since World War Two, and the government has little room for more fiscal support, the Organisation for Economic Cooperation and Development said last week.

"Yes, I have met sovereign wealth funds," Mandelson told reporters in Abu Dhabi, capital of the United Arab Emirates, without giving further specifics. "We welcome sovereign wealth fund investments, unlike some other countries that are hesitant, and we strongly encourage investments from the UAE and others into Britain.

"We need liquidity in the system, we need funds to flow, we need credit to flow," Mandelson said.

Asked about Britain's car industry, Mandelson said it needed investment but declined to comment on whether a bonus for trading in old cars would be included in the April 22 budget.