UPDATE — SEPTEMBER 2025: In 2025, DSIT shifted into implementation mode with its AI Action Plan, which went through consultations in early 2025 and is expected to be formally published this autumn. Drafts of the plan show targeted interventions: funding regional AI hubs, scaling support for startups, skills development programs, and investment incentives to spread AI growth beyond London. To reinforce regulatory trust, the government also advanced frontier AI legislation, committing to establish a statutory AI Safety Institute with initial funding of £10 million, formalizing safety oversight after the voluntary agreements reached at the 2023 Bletchley Park Summit.
Regional investment has been a clear focus. DSIT and Innovate UK rolled out new programs in 2025 to support AI R&D in cities such as Manchester, Birmingham, Leeds, and Glasgow. These initiatives are designed to reduce London’s 70%-plus dominance of AI companies and investment. At the same time, international cloud and compute providers, including Microsoft and AWS, have expanded UK-based AI infrastructure, easing concerns about dependence on overseas capacity.
Investment volatility, however, continues. Early 2025 data showed deal counts remaining high but with smaller average values, keeping pressure on scale-ups to seek international capital. In response, DSIT doubled funding for AI scholarships and fellowships, with emphasis on regional universities, to address talent bottlenecks.
Finally, the UK has reinforced its global AI role through deepened policy cooperation with the U.S. and EU, particularly around standards for frontier AI safety and R&D collaboration. Together, these steps mark the government’s move from analysis into active delivery—laying the groundwork for a more distributed, resilient, and trusted AI sector.
ORIGINAL NEWS POST:
UK AI Sector Sees Rapid Growth and Challenges in Investment, Talent Access, and Infrastructure, DSIT Report Reveals
Based on the recent “Artificial Intelligence Sector Study 2023,” the UK Department for Science, Innovation, and Technology (DSIT) highlights significant growth and challenges within the nation’s AI industry. Released on October 23, 2024, this report offers insights into the size, distribution, and economic impact of the UK’s AI sector, underscoring its role as a driver of economic growth and innovation while also identifying hurdles that may impact future development.
According to the report, the UK AI sector has seen robust expansion over the past year, with the number of AI companies growing by 17% to over 3,000 firms, generating more than £10 billion in revenue and contributing £5.8 billion in Gross Value Added (GVA). Employment in AI-related roles increased by 29%, reaching over 60,000 jobs. Notably, AI’s economic footprint is concentrated in diversified companies, which integrate AI capabilities across broader business offerings, rather than dedicated AI companies that focus solely on AI products and services.
Despite this growth, the industry is geographically concentrated, with 73% of AI firms based in London, the South East, and East of England. This concentration underscores a reliance on these regions for access to talent, investment, and digital infrastructure. However, there is notable AI activity in sectors like automotive, transportation, and agriculture, which have a stronger presence outside the capital.
Investment in the UK’s AI sector remains strong but has shown signs of volatility. Total AI-related revenues surged, driven by diversified firms whose AI-related income rose by 80% in 2023. Investment trends, however, show a 53% decline in value despite a stable volume of deals, indicating smaller average deal sizes. London retains its status as the primary investment hub, attracting over 70% of total AI-related funding.
The study also reveals scaling challenges, with AI startups struggling to secure growth-stage investment and often seeking funds abroad. A significant portion of respondents in the sector survey reported that limited access to capital and talent, particularly outside of London, inhibits growth. Smaller firms, in particular, are disproportionately affected by these barriers, as they lack the financial resources to compete with larger firms on recruitment and infrastructure spending.
In response to these findings, DSIT aims to bolster AI development through a newly mandated action plan, led by Matt Clifford, which will outline strategies to foster innovation while addressing challenges in the sector. This initiative will focus on enhancing infrastructure, securing equitable access to capital, and improving digital skills, with a goal of making the UK more competitive in the global AI market.
In addition, the government has committed to regulating “frontier” AI technologies to ensure the safe and ethical use of advanced AI models. This regulatory approach, announced during the King’s Speech, aims to establish a framework for building trust in AI, critical to its broader adoption in public and private sectors.
While the UK’s AI sector is thriving, challenges remain. AI companies cite rising procurement costs and access to critical infrastructure—like data centers and supercomputers—as significant barriers. With a heavy reliance on international providers for AI infrastructure, there is a growing need to strengthen the UK’s self-sufficiency in digital resources. Furthermore, AI talent remains concentrated in London, with AI engineer salaries reaching £87,500 in the capital, significantly above the national average. Regional disparities in talent access may hinder efforts to establish a more balanced AI ecosystem.
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