The UK economy has so far proved hardy in the face of the vote to leave the EU.
While GDP growth has slowed, it’s been higher than many had expected – consumers continue to spend on the high street and exporters have been taking advantage of a weaker sterling.
But uncertain times are still ahead and there are some warning signs coming into view. Business optimism is dwindling, investment intentions have softened and the lower pound will start to bite into import costs and real incomes over a longer period. Our most recent economic forecast has put growth for next year at 1.3 per cent – down from a forecast of 2 per cent before the referendum.
Nonetheless, the UK was on firm foundations going into the referendum. We must build on this so growth and opportunity reach all of the UK’s regions. Developing the best environment for companies to innovate will ensure that they do.
Innovation can help address our long-standing productivity problem and, following the referendum, an ambitious commitment to innovation would help businesses to get on with developing fantastic new products and services that will enable them to expand internationally.
A strong innovation eco-system will pull in overseas investment, raise output, and create jobs. Get it right, and we set ourselves up to be a competitive, globally-focused economy.
Science and innovation rapidly need to climb up the agenda to achieve this – within both government and the wider business community. The good news is the UK is already home to some incredibly pioneering sectors and companies.
Our games industry, for instance, blends the best of British innovation and creativity, exporting the world over. Grand Theft Auto V, already the fastest selling entertainment product in history, last week passed the 70m sold mark.
Elsewhere, the UK leads the pack in sectors like life sciences, aerospace and automotive. These are supported by an almost unrivalled research base, with the UK ranking second globally for the quality of our scientific research institutions. And the links between the two are strong, seeing the UK rated fourth for university-industry collaboration.
But there are other areas where we really must raise our ambition and performance.
Our under-investment in R&D has long acted as a drag on the economy. As UK spend has stagnated over the past two decades, innovation leaders like Germany have upped their game, and growing nations such as China have outstripped us.
UK public and private spend on R&D is currently just 1.7 per cent of GDP, far short of international benchmarks. This has left the government-funded Innovate UK – a body highly rated by CBI members – in receipt of 0.03 per cent of GDP. Is this really the best we can do? Numbers so small they round down to zero.
Leaving the EU could potentially mean forfeiting access to research and innovation funds, as well as reduced opportunities for businesses and universities to collaborate. This could mean missing out on programmes like the Clean Sky Initiative – the EU’s largest aeronautics programme – featuring 84 companies, research institutions and universities.
Together, the government and business community have plenty to do on this front.
So in order to make the UK an innovation powerhouse, there are three key areas government and business should work on, especially with an Autumn Statement around the corner.
First, the government should set an ambitious target on research spend – aiming for 3 per cent of GDP by 2025. Innovate UK should be the government’s first port-of-call and we’d like to see its budget double.
Second, we need a clearer understanding of the implications of leaving the EU for science and innovation. Here, the government should develop a funding roadmap for those areas currently covered by EU money.
Finally, the government needs to make good on its commitment to a modern industrial strategy. We need a true partnership, with businesses and government working together to ensure the most promising technologies are developed and adopted across our key sectors and all regions.
It’s often said that necessity is the mother of invention. In this case Brexit makes it a necessity to act now to create opportunities for businesses to innovate, compete and, ultimately, to think globally. As one business recently put it to me, “it’s not enough to be as good as Europe anymore, we have to be better.”