Hi Golddust - and this is something that I have direct experience of.
Basically, Google will only list sites that are either physically hosted in the UK, or else use a UK tld, ie, .co.uk or .org.uk, etc.
Obviously, this helps tie down user specific searches based on region.
I realised the various advantages of bringing my sites home a while back, and closed all my US hosted accounts to bring all my sites to the UK.
On the one hand, I have extra traffic brought in specifically by .co.uk searches. It's not actually a great deal more, but it helps bring welcome attention to the sites.
On the other hand, it can help immensely with branding. For example, it's not yet finished, but check out:
www.chronicles-network.com - and look at the top left corner. Doesn't that look impressive? It is quite true as well. And that can only help encourage natural linking as other people notice the site and add it top their link lists of recommended sites (in time).
A word of caution, though - a lot of UK companies actually use servers in the US, either exclusive, or else mix them with UK servers. So do watch out that are are actually physically hosted in the UK (ie, datacenters such as
Redbus 1, 2 or 3, Telehouse, or Global Switch London).
Also - do note that it's best to actually have the site transferred and running fine on the UK servers, before actually closing your US accounts(s). I made a rather stupid mistake with this and rushed the transfer of Business-Talk.co.uk - this very forum - so as to beat the next payment - gosh, $5 - and ended up losing a third of the forum due to a corrupt database. And as the US account had been quickly closed, I no longer had access to a new copy.
You shouldn't find your rankings affected on Google.com - my sites had established rankings that they have not at all lost - the difference being that your site *may* be easier to find on UK only searches in addition to established rankings on Google.com.
However, do note that it;s still the old game with needing good links in to get the rankings. There may be less competition on UK searches on Google.co.uk - but that doesn't mean to say that the commercially sensitive search terms haven't been grabbed and well SEO'ed for already.
Hope that helps - feel free to ask any further questions.
