Business research and development (R&D) expenditure in the UK declined last year to its lowest level since the Covid-19 pandemic, as companies reassessed their spending plans in an important area for the UK’s bid to boost economic growth. 

In 2023, real spending on R&D by UK businesses fell year-on-year by 3% — or £3.4bn — to just short of £50bn, marking the second consecutive year of decline, according to data released on December 11 by the Office for National Statistics. 

The same downward trend is reflected in FDI announcements in R&D activities in the UK, which declined from 112 to 74 projects over the same period, according to fDi Markets, a greenfield investment tracker.

Rosalind Gill, head of policy at the UK’s National Centre for Universities and Business, tells fDi that the decline of R&D spending in the UK is the result of an “incredibly challenging” global operating environment and the turbulence of the UK’s economic policies and strategies in recent years, including Brexit.

“There is rising global competition. A lot of countries around the world have incredibly ambitious research and innovation strategies,” she says, adding that research and innovation has become key to long term economic strategies in a rapidly changing, technology-driven world.

The UK’s downward R&D trend highlights the challenge facing the Labour government’s goal to boost economic growth. Official data from the Department for Business and Trade shows the UK has struggled to attract FDI in growth-driving sectors such as aerospace and software identified by the government in its industrial strategy plan published in October. The full strategy is expected to be published in Spring 2025. 

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Companies have welcomed the government’s renewed focus on an industrial strategy, but “specificity is incredibly important” in highlighting the areas where the UK can translate research into genuine innovation to unlock economic activity, says Ms Gill. “We need to be really clear about where we see significant commercial opportunity in the UK,” she adds. 

While the UK was the fourth largest destination for R&D FDI projects between 2003 and 2024, preliminary data for the first 10 months of 2024 shows its share of global R&D projects fell to 5.6%, fDi Markets shows, marking a gradual decline from an all-time high of 11.5% recorded in 2020.

London had the highest regional value of business R&D in 2023 at £11bn, equivalent to almost a quarter of the UK’s total, according to ONS figures. It was followed by the East of England (£9.7bn) and the south-east (£8.5bn), which are home to leading universities like Cambridge and Oxford respectively.

R&D is spending on activities that increase knowledge and ways to apply it, often leading to new products, services and formation of new businesses. R&D is desirable due to its potential for large economic spillovers and to be a driver of economic growth, with the Institute for Fiscal Studies estimating a 10% increase in R&D spending leads to a 0.7% rise in gross domestic product.

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