The latest figures on Business Enterprise R&D (BERD) paint a nuanced picture of the UK innovation landscape
On the surface, 2024 shows a welcome uptick in private research spending. Look closer, however, and the story becomes more complicated. Real investment has stalled, regional divides are widening, and large parts of the economy are pulling back on innovation.
A rebound that masks stagnation
Business research spending increased by 2.3 per cent in 2024 to reach £55.6 billion in constant 2024 prices, which is undoubtedly good news. However, this masks a troubling underlying trend. After peaking in 2021, real business R&D spending has essentially flatlined for four consecutive years, hovering stubbornly between £54 billion and £56 billion (See Figure 1). Contrast this with the four years before 2021, when business R&D spending rose by 12%.
Nominal growth in recent years has concealed real stagnation. Firms are spending more in cash terms, yet their actual innovation capacity has barely budged, as inflation has whittled away the value of their R&D investments. Firms have invested more just to stand still.
Figure 1: UK Business R&D investment trends (2018-2024), current prices vs real prices (2024)
Source: NCUB (2025) based on BERD ONS 2025.
What’s behind the stall?
The composition of where this growth comes from tells us something important about how firms are responding to economic pressure. The breakdown of R&D spending between 2022 and 2024 reveals that almost all the growth in business investment has come from current expenditures (e.g., investments not in longer-term capital stock), particularly staff costs. Spending on salaries and wages grew by over five per cent, and because wages account for more than half of all R&D expenditure, this single element constituted over half of total growth (See Figure 2). Other current costs made marginal positive contributions, reflecting small increases in day-to-day research activity.
Capital investment, by contrast, sharply declined. Spending on plant and machinery fell by almost 13%, and expenditure on land and buildings by nearly 10%. Whilst these categories represent a smaller share of total R&D, the declines still dampened overall growth. The pattern is telling: firms have prioritised retaining skilled staff and maintaining core research activity whilst cutting back on heavier capital commitments during this period of economic pressure. In essence, businesses have chosen people over physical assets; short-term, flexible investments over long-term commitments.
This bifurcation reinforces an important conclusion: much of the recent rise in R&D represents restoration of essential activity rather than expansion of long-term innovation capacity. Firms are filling holes rather than breaking new ground.
Figure 2: UK R&D business expenditure growth weighted by spending share (2022-2024)
Source: NCUB (2025) based on BERD ONS 2025.
Several deeper forces are squeezing UK business innovation more broadly, encouraging this focus on short-term stopgaps. Rising input costs have eroded spending power in real terms. Firms remain cautious following pandemic disruptions to their investment budgets. High interest rates and economic uncertainty have made it harder for companies to commit to the long-term research programmes that drive genuine innovation. And underlying it all, the broader slowdown in UK productivity growth has dampened how much firms are willing to invest in R&D relative to their output.
The ONS data also comes with an important caveat: the survey underwent substantial methodological redevelopment in 2022, so comparisons with earlier historical trends need to be treated with caution.
Sectoral dynamics
The 2024 picture reveals a sharply polarised R&D landscape. A few sectors are clearly recovering. Information services, advanced manufacturing, and water and utilities have seen substantial rebounds, suggesting that larger firms with stronger balance sheets are beginning to commit to research again. These are businesses confident enough in future demand to make significant investments.
Figure 3. Total business R&D spending, 2022-2024, by firm size in real terms
Source: NCUB (2025) based on BERD ONS 2025.
Smaller firms, though, have barely moved the needle. Tighter margins and limited access to finance mean they continue to struggle with scaling up their research activity. They lack the financial cushion that bigger companies can rely on.
Sector-level patterns reveal a highly uneven landscape in UK business R&D between 2022 and 2024. Financial services recorded the strongest growth (+20.7%), driven by continued investment in data, digital infrastructure and fintech capabilities. Digital & Tech also performed well, with R&D rising by +15.9%, and Clean Energy saw a notable rebound (+13.0%) as firms expanded low-carbon technologies. Advanced Manufacturing posted steady growth at +9.8%, and Professional & Business Services grew by +7.3%.
Life sciences—despite representing around 25% of all UK business R&D spending—registered a slight contraction (-0.8%), underscoring how even the country’s largest and most research-intensive sector has faced pressures over this period. The creative industries experienced a sharper fall (-9.7%), while Construction (-23.5%) and the residual “Other” category (-26.2%) saw the most pronounced declines. Weighted by their 2024 spending shares, these results highlight a two-speed recovery: strong momentum in a handful of high-value sectors alongside significant retrenchment in others.
Figure 4. UK business R&D growth by Industrial Strategy (IS) sector (2022-2024) weighted by total R&D spending in 2024.
Source: NCUB (2025) based on BERD ONS 2025.
The geography problem
Regional analysis reveals one of the most troubling aspects of the current R&D picture: the UK’s innovation capacity is becoming increasingly concentrated.
Figure 5. UK business R&D growth by region and country (2022-2024)
Source: NCUB (2025) based on BERD ONS 2025.
Only two regions recorded genuinely strong growth between 2022 and 2024. The West Midlands saw a 22%increase, and London managed 15% growth (See Figure 5). These regions are home to larger, research-intensive firms capable of weathering economic uncertainty.
Meanwhile, much of the country’s research activity is in reverse. The North East, East Midlands, and North West each suffered real declines of around 11 to 12 per cent. The South West eked out only modest gains. Even England as a whole recorded only modest growth.
This geographic imbalance is deeply concerning. Whilst a handful of regions strengthen their R&D capacity, many others are on a downward trajectory. Over time, this risks creating a widening gap in investment capability and long-term economic resilience across the country.
Decoupling innovation from growth
Perhaps the most striking finding is the growing disconnect between R&D investment and economic output. Most sectors show little to no real growth in business spending on research between 2022 and 2024, even as their economic performance diverged sharply (See Figure 6).
Figure 6. GDP growth and R&D growth UK industrial strategy sectors (2022-2024).
Source: NCUB (2025) based on BERD ONS 2025.
The comparison of R&D growth and GDP growth across the UK’s Industrial Strategy sectors highlights a clear decoupling between research investment and economic performance. Digital and Technologies emerges as the strongest performer, combining solid R&D growth with the highest GDP expansion in the period. Advanced Manufacturing and Professional & Business Services also fall into the positive–positive quadrant, showing both rising R&D activity and growing output. Life sciences, however, sits in a more concerning position: despite generating positive GDP growth over 2022–24, its business R&D spending has been essentially flat, indicating a disconnect between strong sectoral output and the research investment needed to sustain future competitiveness. Financial Services and Clean Energy show the opposite pattern, with strong R&D growth but weak GDP performance, suggesting firms are continuing to invest despite challenging market conditions. Meanwhile, Creative Industries and Construction exhibit negative R&D growth alongside flat or modest GDP gains, underscoring the pressures these sectors face in maintaining innovation capacity. Overall, this analysis reinforces that R&D and output performance are no longer moving in tandem across many parts of the UK economy, with only a handful of sectors delivering growth on both fronts.
What does this mean?
The 2024 rebound is real, but it is also limited. It reflects a gradual stabilisation in investment conditions and a return to underlying activity led by the biggest R&D performers. It is not a broad-based expansion across the business population.
The real story is one of uneven recovery and growing concentration. A handful of high performing areas are investing again. But large parts of the UK economy continue to scale back, smaller firms struggle to participate meaningfully, and regions outside London and the West Midlands risk being left behind.
A note on how we compare internationally
Internationally, the UK’s muted recovery in business R&D mirrors wider global patterns. In 2024, the landscape is increasingly dominated by a handful of US technology giants whose scale and pace of investment—particularly in AI, cloud and advanced semiconductor technologies—continue to widen competitiveness gaps. The latest EU Industrial R&D Investment Scoreboard shows the Rest of the World group achieving the strongest growth (+8.1%), followed by the US (+7.8%) and Japan (+7.1%). China’s R&D growth slowed to +3.9%, and the EU posted only +2.9% (See Figure 7). Against this backdrop, the UK’s +2.2% places it at the lower end of the global distribution, underscoring how its stalled recovery aligns with broader slowdowns among advanced economies outside the US and Japan. Even though this comparison is not entirely straightforward—Scoreboard data reflects the top 2,000 global corporate R&D performers, typically covering around 80% of a country’s business R&D—it still highlights a meaningful trend. A fuller picture will only emerge once the OECD updates its MSTI series for business R&D expenditure next year.
Figure 7. Business R&D investment growth rates across select economies (2023 vs 2024)
Source: NCUB (2025) based on BERD ONS 2025.
As we look ahead to 2026, NCUB will continue to treat business R&D as a central analytical priority. The trends emerging through 2024–25 reinforce the urgency of sustained, high-quality evidence on how UK firms are investing, where pressures are emerging, and where opportunities for growth lie. Building on the work of the Business-Led R&D Taskforce, we will keep tracking these patterns, deepening our analysis of sectoral and regional dynamics, and supporting the implementation of the Taskforce’s recommendations. Strengthening the UK’s innovation ecosystem requires long-term commitment—and NCUB will continue providing the data, insights and strategic perspective needed to help shape that agenda.
For now, our team wishes everyone a restful festive season and a happy 2026.
Principal Economist, NCUB
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