Record growth masks serious challenges
A comprehensive AI sector study – conducted by the Department for Science, Innovation and Technology (DSIT) in collaboration with Perspective Economics, Ipsos, and glass.ai – provides a detailed overview of the industry’s current state and its future prospects.
In this article, we delve deeper into the key findings and implications—drawing on additional sources to enhance our understanding.
Thriving industry with significant growth
The study highlights the remarkable growth of the UK’s AI sector. With over 3,170 active AI companies, these firms have generated £10.6 billion in AI-related revenues and employed more than 50,000 people in AI-related roles. This significant contribution to GVA (Gross Value Added) underscores the sector’s transformative potential in driving the UK’s economic growth.
Mark Boost, CEO of Civo, said: “In a space that’s been dominated by US companies for too long, it’s promising to see the government now stepping up to help support the UK AI sector on the global stage.”
The study shows that AI activity is dispersed across various regions of the UK, with notable concentrations in London, the South East, and Scotland. This regional dispersion indicates a broad scope for the development of AI technology applications across different sectors and regions.
Investment and funding
Investment in the AI sector has been a key driver of growth. In 2022, £18.8 billion was secured in private investment since 2016, with investments made in 52 unique industry sectors compared to 35 sectors in 2016.
The government’s commitment to supporting AI is evident through significant investments. In 2022, the UK government unveiled a National AI Strategy and Action Plan—committing over £1.3 billion in support for the sector, complementing the £2.8 billion already invested.
However, as Boost cautions, “Major players like AWS are locking AI startups into their ecosystems with offerings like $500k cloud credits, ensuring that emerging companies start their journey reliant on their infrastructure. This not only hinders competition and promotes vendor lock-in but also risks stifling innovation across the broader UK AI ecosystem.”
Addressing bottlenecks
Despite the growth and investment, several bottlenecks must be addressed to fully harness the potential of AI:
- Infrastructure: The UK’s digital technology infrastructure is less advanced than many other countries. This bottleneck includes inadequate data centre infrastructure and a dependent supply of powerful GPU computer chips. Boost emphasises this concern, stating “It would be dangerous for the government to ignore the immense compute power that AI relies on. We need to consider where this power is coming from and the impact it’s having on both the already over-concentrated cloud market and the environment.”
- Commercial awareness: Many SMEs lack familiarity with digital technology. Almost a third (31%) of SMEs have yet to adopt the cloud, and nearly half (47%) do not currently use AI tools or applications.
- Skills shortage: Two-fifths of businesses struggle to find staff with good digital skills, including traditional digital roles like data analytics or IT. There is a rising need for workers with new AI-specific skills, such as prompt engineering, that will require retraining and upskilling opportunities.
To address these bottlenecks, the government has implemented several initiatives:
- Private sector investment: Microsoft has announced a £2.5 billion investment in AI skills, security, and data centre infrastructure, aiming to procure more than 20,000 of the most advanced GPUs by 2026.
- Government support: The government has invested £1.5 billion in computing capacity and committed to building three new supercomputers by 2025. This support aims to enhance the UK’s infrastructure to stay competitive in the AI market.
- Public sector integration: The UK Government Digital Service (GDS) is working to improve efficiency using predictive algorithms for future pension scheme behaviour. HMRC uses AI to help identify call centre priorities, demonstrating how AI solutions can address complex public sector challenges.
Future prospects and challenges
The future of the UK AI sector is both promising and challenging. While significant economic gains are predicted, including boosting GDP by £550 billion by 2035, delays in AI roll-out could cost the UK £150 billion over the same period. Ensuring a balanced approach between innovation and regulation will be crucial.
Boost emphasises the importance of data sovereignty and privacy: “Businesses have grown increasingly wary of how their data is collected, stored, and used by the likes of ChatGPT. The government has a real opportunity to enable the UK AI sector to offer viable alternatives.
“The forthcoming AI Action Plan will be another opportunity to identify how AI can drive economic growth and better support the UK tech sector.”
- AI Safety Summit: The AI Safety Summit at Bletchley Park highlighted the need for responsible AI development. The “Bletchley Declaration on AI Safety” emphasises the importance of ensuring AI tools are transparent, fair, and free from bias to maintain public trust and realise AI’s benefits in public services.
- Cybersecurity challenges: As AI systems handle sensitive or personal information, ensuring their security is paramount. This involves protecting against cyber threats, securing algorithms from manipulation, safeguarding data centres and hardware, and ensuring supply chain security.
The AI sector study underscores a thriving industry with significant growth potential. However, it also highlights several bottlenecks that must be addressed – infrastructure gaps, lack of commercial awareness, and skills shortages – to fully harness the sector’s potential.
(Photo by John Noonan)
See also: EU AI Act: Early prep could give businesses competitive edge
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