The UK is one of the world’s leading innovation economies. It ranks fourth globally for scientific publications (behind only China, the USA, and India) and sits among the top countries for high- impact research and patents in critical technologies. It has also built one of the strongest startup ecosystems outside the United States.
As the government moves from designing its Industrial Strategy to delivering it across eight priority sectors and begins to frame public R&D investment around a set of broad funding “buckets”, the question is shifting: not how much research the UK produces, but whether it translates into sustained industrial competitiveness.
The latest UK Innovation Report, published by Cambridge Industrial Innovation Policy at the Institute for Manufacturing, University of Cambridge, finds that while the UK excels in research and early-stage innovation, it continues to underperform on innovation outcomes such as high- technology exports, technology scale-up, and global industrial market share.
The report highlights that competitiveness – measured at sector level through value added, export performance, employment, and global position – should become the central benchmark for success.
From innovation inputs to industrial outcomes
The UK’s research performance remains internationally strong. For example, in 2023, the UK ranked sixth globally for total R&D expenditure, accounting for 3.5% of global spending. R&D intensity stood at 2.68% of GDP, below the OECD average and leading R&D-intensive economies, though above several G7 peers and China.
In 2022, the UK ranked fourth worldwide for total publications and was among the top five for highly cited outputs in technology fields across the physical sciences and life sciences. It was also among global leaders in patent applications in areas such as artificial intelligence, biotechnology, and semiconductors.
Yet this strength has not proportionately translated into industrial advantage at a time of intensifying global competition. The report finds, for example, that the UK has a relatively low share of high-technology exports in total trade, and its representation among the world’s top R&D-investing firms has declined since 2012.
While the UK ranks among global leaders in startup creation and has produced a high number of so-called “unicorn” firms, this success has not translated into sustained productivity growth, export dynamism, or deeper domestic industrial capacity.
“The UK performs strongly on research excellence and scientific output,” said Carlos López- Gómez, co-author of the report. “But research excellence alone does not guarantee industrial competitiveness. Considering the Industrial Strategy’s stated objectives, the question is how this research strength connects to domestic production, export performance, and sustained industrial capability. The UK cannot simply become the ‘lab of the world’, with new products and services based on knowledge created here but produced abroad.”
The technology scale-up gap: where value leaves the UK
UK technology scale-up activity is concentrated in a narrow set of sectors, notably life sciences, software, and fintech. While the UK performs strongly in early-stage innovation, since 2012 most university spinout IPOs have taken place overseas, and acquisitions of UK firms by foreign companies have increased significantly over the past decade.
These patterns point to a persistent challenge in domestic value capture. Structural factors – including access to supply chains, specialised skills, regulatory conditions, and market scale – influence where long-term industrial benefits are realised.
The report highlights that technology scale-up should not be defined by firm valuation or capital raised alone – but by the extent to which companies build domestic production capacity, exports, and sectoral depth over time. The concentration of scale-up activity in a limited number of sectors helps to explain why strong innovation performance has translated unevenly into competitiveness across manufacturing-intensive and other strategic sectors.
“Industrial strategy must focus less on the number or valuation of high-growth firms and more on whether innovation helps to regain competitiveness in priority sectors,” said co-author Dr David Leal-Ayala.
Electronics and electrical equipment: productivity without scale, a warning sign?
The report’s analysis of the electronics and electrical equipment sectors illustrates the broader structural shift in UK manufacturing. Together, these sectors account for 10% of UK manufacturing value added and 13% of manufacturing exports.
Electronics has grown faster in value added than manufacturing overall since 2000 and performs strongly in labour productivity. At the same time, both electronics and electrical equipment have seen long-term employment reductions, and the UK runs trade deficits in both sectors.
The findings highlight a transition away from scale and volume towards highly productive, knowledge-intensive niches embedded in global value chains. Competitiveness increasingly rests on strengths such as metrology, photonics, medical technologies, and specialised grid- related equipment rather than high-volume, low-cost products.
“The real opportunity for the UK lies in reversing the long-term decline of high-value-added sectors,” said co-author Zongshuai Fan. “The UK has an enviable research and innovation base, but the challenge is ensuring that these capabilities support the competitiveness and growth of its industrial sectors.”
Skills and workforce constraints
The report identifies workforce pressures as a structural constraint on competitiveness. A total of 64% of the workforce in the eight priority sectors identified in the Industrial Strategy hold graduate-level qualifications, compared with 52% across the economy. Around 82% of new jobs in priority occupations between 2025 and 2030 are expected to require post-secondary education.
Despite overall vacancy levels easing, skills shortages persist. In 2024, skills-shortage vacancies accounted for 27% of all vacancies. In 2025, 76% of engineering employers reported difficulties recruiting workers with the required skills, with specialist sustainability skills most frequently cited as the main challenge.
Co-author Michele Palladino said the skills challenge risks becoming a binding constraint on Industrial Strategy delivery: “The data suggests that current shortages are structural rather than cyclical, particularly for science and engineering professionals. Without closer alignment between skills and industry needs, workforce constraints could limit the effectiveness of industrial strategy implementation.”
The case for outcome-led industrial policy
As the government enters the delivery phase of its Industrial Strategy, the report demonstrates that policy attention may need to shift from inputs – such as R&D intensity and startup numbers – towards outcomes measured at sector level: value added, employment, export performance, and global market share. Increasing investment and capital supply alone is unlikely to close the UK’s scale gap without complementary capabilities, including skills, supply chain depth, manufacturing capacity, and market access.
“The evidence highlights three areas requiring particular focus: strengthening the link between research excellence and domestic industrial scale; supporting later-stage technology deployment and adoption within priority sectors; and addressing structural skills and capability constraints that limit growth,” López-Gómez said.
“The central challenge is not whether the UK produces world-class science but whether it can convert that strength into a durable industrial advantage in an increasingly competitive global environment. Together, the findings in the Innovation Report suggest that competitiveness and good jobs – not innovation activity alone – should be the benchmark for success.”
The UK Innovation Report 2026 will be available at www.ciip.group.cam.ac.uk on 19 March 2026 at 09:00 GMT
