Innovate UK has released its State of Innovation 2024 survey, drawing on data from over 2,000 UK firms to provide a thorough breakdown of UK businesses’ innovation activities, including their priorities, challenges, and plans for the year ahead.

The report found that despite recent economic concerns, innovation continues to be a strong driver of growth, with businesses that innovated over the past year reporting average sales growth over three times greater than other firms (7% vs 2%).

There is also evidence that more innovation has led to much greater efficiencies, with over half of the firms taking part in process innovation activities identifying cost savings. Of those, 55% said that they had experienced savings of at least 10%. 

However, innovation levels across UK firms has noticeably declined over the past year, with just over half (56%) of businesses having made changes to products or services, a fall from 61% in 2023. 

Added to that, innovation rates fell most for small, micro and non-frontier businesses, with the data showing a widening gap between them and larger frontier firms, and just under half of all innovating firms (46%) reporting factors that had constrained their innovation.

Companies said that they had been held back by a range of barriers, including the ‘cost of doing business crisis’ (52%), a lack of government support (40%), uncertain demand (39%), insufficient finance (38%), and a lack of skills (33%).

More than a third of businesses reported that recruitment difficulties had also restricted their innovation work, with this being more common for large companies (42%) than micro firms (33%).  

Among companies facing recruitment challenges tied to innovation, the most frequently cited difficulties were in hiring technicians (27%), graduate-level technicians (23%), engineering staff (21%), and software developers (17%).

The data shows that smaller businesses are less likely to seek support or invest in innovation to overcome these barriers, with micro businesses (39%) only half as likely to seek external support than large businesses (75%).

Large businesses were also twice as likely as micro businesses (41%) to invest in R&D over the next year (86% vs 41%), and 96% of those planning to innovate over the next year planned to maintain or increase their spending on R&D and innovation.

The survey found that most businesses looked to internal funding for innovation and R&D, with 70% of firms going this route, with medium and large firms were more likely to look for equity funding (7%) compared to smaller, non-frontier businesses (2%).

Other sources of funding were reported by smaller proportions of innovators, including R&D tax credits (12%), grants (10%), bank loans (7%), government loans (6%) and equity finance (3%). 

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In a foreword for the report, Dr Stella Peace, Innovate UK’s interim executive chair, wrote: “This report provides valuable insights into businesses’ innovation experiences over recent years and their outlook for the future. 

“Our headline findings emphasise the immense value of innovation. This compelling evidence reinforces the positive impact of business-led innovation on growth and the importance of fostering a culture of innovation for economic progress and prosperity.

“We commit – through our programmes, products and services – to build on these results: to help businesses succeed in the current environment and meet future opportunities.”