Britain’s tech sector ‘massively punches above its weight’
The UK’s tech sector continues to generate capital, attract global investment and talent, yet the domestic narrative often points to a country in retreat.
“We have a huge narrative issue”, Russ Shaw, founder of Global Tech Advocates and London Tech Advocates, told CityAM. “We’re the third largest tech ecosystem in the world. We have a great AI ecosystem here”.
Shaw’s words come as inflation has edged down, and recent GPD have offered tentative encouragement.
Meanwhile, unemployment has risen to 5.2 per cent, with youth joblessness a growing concern.
Applications for skilled worker visas in tech have fallen, down 11 per cent quarter on quarter at one point in 2025, according to RSM.
And at the same time, AI is being deployed at scale across corporate Britain.
RSM also found 98 per cent of tech executives are using AI, and more than a quarter reported cutting headcount over the past year, with over half attributing reductions to roles “augmented or replaced by AI”.
“The outlier for me that I am worried about is the unemployment rate ticking up”, Shaw said. “I think there’s a double whammy there”, he says, describing employers balancing higher employment costs with the rise of AI.
Why invest in talent if AI can do the work?
Businesses are asking themselves, “‘Do I really need to invest in younger talent if I know AI’s going to be doing a lot of that work?'”
But this issue is a global one, one even happening in countries leading the AI race, like the US or China, where reported youth unemployment rates have hit 20 to 25 per cent.
Aside from these setbacks, the UK retains considerable structural advantages.
Early-stage investment mechanisms continue to draw attention overseas.
“Whenever I travel, the UK is held up on a pedestal for, you know, EIS, SEIS, great pools of angel and early-stage funding”, Shaw says.
The constraint emerges as firms move into later growth stages.
But, while efforts to mobilise pension capital and deepen domestic funding pools are under way, though Shaw added: “No other nation is waiting for us to get our act together”.
Looking at the fragile IPO landscape, plans for one of London’s largest tech listings in years were recently reconsidered after a sharp global sell-off in software stocks.
The jitters were triggered by investor concern that advances in AI could compress margins across subscription-based business models.
Hedge funds have accumulated significant short positions in the sector. UK investors are often described as demanding clearer proof of commercial traction before committing capital, reflecting a market that has shifted from the exuberance of 2021 and 2022 to greater scrutiny.
Shaw said valuation resets are a sign of adjustment within a fast-moving sector. “Valuations are frothy,” he says. “Course corrections are good. Let’s not get too far ahead of ourselves”.
He added: “t’s not like they’re building this and nobody’s coming. The revenues are skyrocketing.”
AI policy and exposure
AI now sits at the centre of the UK’s government strategy.
Ministers have pledged £86bn in R&D over the Spending Review period and positioned AI adoption as a route to productivity gains.
Various initiatives have ranged from the AI Opportunities Action Plan to regional experiments.
In Barnsley, designated Britain’s first “tech town” just last motnh, the likes of Microsoft and Google are supporting the integration of AI into schools, hospitals and local services, while residents are offered digital training.
The government has argued that what is learned there could inform national rollout.
“I think the UK’s in a phenomenal place globally,” Shaw said, recalling the impact of Google’s acquisition of DeepMind in 2014.
“Two years later, we had hundreds of AI companies here in London… they all flocked here because you had this AI centre of excellence.”
Continued inward investment from major US technology groups reinforces that sentiment, with execution and skills still a central part of the UK’s status.
Indeed, programmes such as Tech First have aimed to reskill the workforce in tech and AI, though some have drawn criticism for pace and design.
And alongside opportunity sits exposure, with research indicating that 88 per cent of publicly listed UK companies rely on US email providers, with particularly high dependence in banking, telecoms, utilities and energy.
The AI sovereignty debate
Broader cloud reliance has triggered various bubbling concerns about digital sovereignty, especially as geopolitical tensions come into force.
“I think every country in the world needs to think about its own sovereignty to a much greater degree as it relates to science, innovation, technology, and defense,” Shaw told CityAM.
“Are we ever going to manufacture high-end chips? No. But can we build more manufacturing capability in the UK for other things? We probably should do that.”
He also quipped that global connectivity remains key to the tech economy, and that the UK’s role as an international bridge between the US, Europe, Africa and the Middle East “is our strength”.
The sector on British soil then stands at a point somewhere between AI-driven disruption and tighter capital markets, but its underlying ecosystem is substantial, in both scale and in reach.
“We’ve built something where we’ve got a tech ecosystem that massively punches above its weight”, Shaw added.
For the country to sustain that position much will depend on capital formation, workforce adaptation and the steadiness with which the country, and its government no less, presents its case to investors and entrepreneurs overseas.