UK AI Sector Booms, But Skills Shortage and Funding Gaps Threaten Long-Term Growth
The United Kingdom’s artificial intelligence (AI) sector has experienced explosive growth, with revenues surging to an unprecedented £23.9 billion in the past year. This rapid expansion, which outpaces the broader economy by a factor of 150 since 2022, is fueled by a vibrant and rapidly expanding community of over 5,800 AI companies, marking a 58% increase since 2023 alone.
This growth isn’t limited to the tech giants; it’s being driven by a wave of innovative startups. Small and medium-sized businesses account for over 90% of new entrants, creating a ripple effect of innovation across the country. This growth has also led to an increase in employment, with the sector now employing more than 86,000 people – a third more than the previous year.
Feryal Clark MP, Parliamentary Under-Secretary of State for AI and Digital Government, stated that “the UK AI sector has grown 150 times faster than the economy at large.” This growth is indicative of the increasing integration of AI across various sectors, from healthcare and finance to manufacturing and professional services.
The driving force behind this impressive expansion is a torrent of investment. In 2024 alone, £2.9 billion was invested into dedicated AI firms, making the UK an attractive destination for international capital. This year, the country has attracted £15 billion in inward investment projects, which are expected to generate over 6,500 jobs.
While London and the South East remain the hub of AI activity, the boom is spreading across the nation. Regions such as the West Midlands, the North West, and Yorkshire and the Humber have seen a significant increase in local AI companies since 2022.
However, beneath the surface of these optimistic figures, the UK AI sector is grappling with growing pains. According to Isabella Grandi, Director for Data Strategy and Governance at NTT DATA, “the sector is booming, but the study also reveals pressure points.” Companies are struggling to find enough skilled personnel, and late-stage capital remains scarce while lines remain blurred.
The UK is recognized as a world-class incubator for new ideas, but the report highlights a frustrating lack of later-stage growth funding needed to transform promising AI startups into global leaders. As one investor put it, the UK “is very good at the start phase, but [that at] the scale up phase (beyond Series A), there’s a missing piece there.”
Beyond funding, businesses are calling for a clearer rulebook on how to operate. Grandi warns that the long-term success of the UK AI sector depends on building trust, a task made more challenging by regulatory uncertainty.
“Successful AI adoption hinges on how much we can trust it,” Grandi says. “The government’s AI sector study shows rapid expansion alongside a security-first drift, but safety and ethics need to be kept firmly in view, or adoption will slow.”
She points to the EU’s more structured approach as a model for the clarity that companies are seeking. “Firms need a rule book that they can apply,” Grandi explains. “Legislation such as the EU AI Act is backed by practical guidance, and countries such as Ireland are already outlining compliance steps.”
This level of certainty, she suggests, gives companies a clear path forward, and the UK must provide the same clarity to seize the sector’s growth potential. Despite these challenges, the mood around AI investment remains positive, with 58% of AI firms expecting their revenues to grow by 50% or more in the coming year.
However, the UK Government’s trial of Microsoft Copilot yielded less exciting results. It may be a good thing, then, that US federal government workers are receiving free access to Copilot instead.
See also: Switzerland releases 100% open AI model
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