How do the target sectors in the UK’s Industrial Strategy compare across the G7?

The UK’s Industrial Strategy targets growth in eight high-potential sectors. The UK’s position relative to comparator countries varies in each area, and there is room to accelerate growth in most cases. Across the board, continued investment in skills and innovation is needed to grasp the economic opportunities.

Internationally, governments are taking a more proactive approach to industrial strategy. In Europe, Germany boasts a long history of targeted economic policy, with a recent focus on growing its industrial base and high-tech sectors. This sits alongside the EU-wide European Industrial Strategy. Japan’s New Direction of Economic and Industrial Policies similarly focuses on growing high-tech sectors and mission-oriented innovation.

The UK’s Industrial Strategy is broadly in line with these peers. At its centre is a focus on backing winners – maximising the opportunities in eight sectors identified as having the highest potential for productivity and growth. These are: advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences, and professional and business services.

But how does the UK’s performance in these sectors compare to the world’s leading economies? Financial services and professional and business services are long-standing strengths for the UK, but have seen recent stagnation in productivity growth. The UK’s creative industries are showing rapid export growth while life sciences attract substantial inward investment. Sectors like clean energy and digital and technologies (especially AI) are important enablers of the wider economy in the UK and around the world.

Ultimately, achieving the aims of the UK’s Industrial Strategy hinges on attracting the investment in skills and innovation needed to deliver jobs and business growth across the country.

What do we know about the eight high growth sectors in the UK’s Industrial Strategy?

The eight sectors in the UK’s Industrial Strategy (the ‘IS-8’) were identified by the government based on two key dimensions: each sector’s economic potentialto deliver or support high growth and the policy opportunityfor government to have a meaningful impact on the sector.

The sectors vary in their scale and nature. Sectors like professional and business services and financial services are well-defined and already make a large contribution to the UK economy. Others, like clean energy industries, have less established definitions. The contribution of the five IS-8 sectors with an established definition in national statistics to the UK economy (gross value added) over the past 20 years is shown below.

Figure 1. Gross value added of selected IS-8 sectors, 1998-2023

Source: Economics Observatory using DBT Industrial Strategy Sector Definitions List, ONS
Note: 2022 prices, adjusted for inflation. Three of the IS-8 sectors are missing as they have no relevant SIC codes, or codes are absent from the ONS dataset. DBT notes that the SIC system does not adequately cover many of the sectors.

Figure 1 shows how the economic contributions of the IS-8 have changed since 1980. While financial services remain an important pillar of the UK economy, the sector has declined in real terms since the mid-2000s and the 2007/08 global Financial Crisis. At the same time, digital and technology has been one of the fastest-growing sectors, with real GVA rising consistently by an average of 4.6% each year. Professional and business services have also grown rapidly, overtaking financial services in 2013 to become the UK’s largest IS-8 by value added.

How does the current performance of the IS-8 sectors compare?

Many of the sectors in the UK’s Industrial Strategy are also being targeted for their growth potential internationally. To compare their performance across countries, we look at some key economic metrics across the G7: jobs, research and development, investment, skills, productivity, exports and gross value added.

Jobs in clean energy

Clean energy industries are those which directly contribute to the clean power transition.

Figure 2 compares the share of renewable energy jobs across the G7. Germany leads the way with the highest concentration of jobs in renewable energy, at 8,800 per million workers. The UK ranks relatively low, just above Japan, with a comparatively smaller renewable-energy workforce of 2,950 jobs per million workers. UK renewables employment is concentrated mainly in solid biomass and wind energy.

Figure 2. Renewable energy jobs per million workers in the G7, 2023

Source: Economics Observatory using IRENA & OECD

R&D and inward investment in life sciences

The life sciences sector includes all businesses involved in developing and/or producing pharmaceutical or medical technology products.

The UK has the second-highest government budget allocation for health research and development (R&D) as a percentage of gross domestic product (GDP) amongst comparator countries, behind only the United States. The budget allocation made up 0.13% of GDP in 2021, a decline from 0.15% in 2020. Similar declines were seen over the same period in countries such as the USA, France and Japan.

Realising the growth potential of frontier sectors like life sciences also requires translating R&D into commercial opportunities. Inward investment provides an indication of this commercialisation process. The UK saw a drop in the estimated value of inward life sciences foreign direct investment (FDI) in 2023, falling to £0.8 billion – a 21% decline compared with 2022. This marks the second year-on-year decline since 2021 and leaves the UK in the middle of the G7 pack. The United States also saw a notable decline in 2023 but remains a top recipient for FDI, while Germany and France were big winners with increasing inward foreign investment.

Both domestic and foreign investments were particularly volatile during and after the Covid-19 pandemic, amid efforts to accelerate medical research in the pandemic response.

Figure 3. G7 spending on health R&D and inward life sciences FDI, 2013-2023

Source: Office for Life Sciences
Note: inward FDI is measured by capital expenditure.

Government R&D in defence

The defence sector includes activities that directly support the production and delivery of goods or services for defence customers, domestic or international.

The United States has been a consistent outlier amongst the G7 for its extensive defence R&D investments. This investment is a good indicator of how well a country will fare in frontier defence technologies, such as complex weapons or drones and autonomous systems. In this way, America is far ahead of its G7 allies.

Taking Washington out of the equation reveals that the UK government is a relatively big spender on defence R&D compared with the rest of the G7. While the UK’s R&D budget allocation has been declining for over 30 years, it has increased rapidly in recent years. From 2020 to 2023, spending grew from approximately £1.3 billion to £2.9 billion, an average annual increase of 31%.

Figure 4. Government budget allocations for defence R&D, 1981-2024

Source: OECD
Note: USD PPP, constant 2020 prices.

Skills demand in digital and technologies

The digital and technologies sector develops and applies advanced technologies and digital tools to drive transformative changes in our economy and society.

Artificial intelligence (AI) is one such transformative technology, with the power to perform tasks which normally require human input, often with greater speed and scale. The rapid rise of AI has driven growing demand for AI and digital skills amongst workers. Every G7 nation has seen an increase in the concentration of AI talent since 2016 (Figure 5), with Canada, Germany, the UK, and the United States recording the most growth.

In the UK, LinkedIn data reveal that over 15% of new hires in February 2025 possessed AI skills. Recent national estimates reinforce this picture: AI-related employment in the UK grew by 33% in 2024, indicating that demand for these skills continues to accelerate.

Figure 5. AI talent concentration and hiring on LinkedIn, 2016-2025

Source: Economics Observatory using OECD.AI
Note: AI talent shows the concentration of LinkedIn members with at least two AI engineering skills or who perform an AI occupation per country. AI hiring shows the ratio of AI talent hiring relative to the overall hiring of LinkedIn members, for February 2025.

The economic potential of the digital sector can also be seen through the diffusion of AI into the wider labour market. For example, in the UK, the greatest adoption of AI skills can be seen in the technology, information, and media sector, while the lowest adoption is in healthcare (see Figure 6). Financial services is another strong adopter, with 4% of LinkedIn members reporting an AI occupation or skills, and is the only sector where the UK leads the G7 nations.

Figure 6. AI skills concentration of LinkedIn members by industry, UK highlighted, 2025

Source: Economics Observatory using OECD.AI

Share of economy activity in financial services

The financial services sector encompasses a broad range of businesses that manage money and provide financial services to individuals, businesses, and governments.

The UK, United States and Canada have the largest share of national economic activity in the financial services sector (see Figure 7). The UK’s financial services sector has not yet returned to its pre-financial crisis peak, but it remains a heavyweight – contributing over £200 billion in GVA and representing 8.6% of the economy in 2024.

While the recent slower performance of UK financial services reflects an apparent lack of productivity growth, research suggests conventional productivity measures do not capture the full extent of the sector’s activities.

Figure 7. GVA of financial services sector in G7 as a share of total GVA, 2000-2024

Source: OECD

Productivity of workers in professional services

The professional and business services sector provides specialist advice and support primarily to other businesses.

Despite professional and business services making an increasingly significant contribution to the UK economy, productivity in this sector lags other advanced economies. Figure 8 shows that, when comparing labour productivity in professional support activities across the G7, the UK ranks second-from-bottom, above only Canada. In 2021, a UK worker in professional services generated around $62,900 of value per year on average, significantly lower than their German counterpart, who generated over $90,000.

The United States is once again an outlier amongst the G7, with a notably higher output per worker and greater productivity gains in recent years. Other G7 nations, including the UK, have experienced stagnating or declining output per worker since 2000. For the UK, this underlines that even a high-value, fast-growing sector such as professional services is not immune to the country’s wider productivity problem.

Figure 8. Labour productivity in professional service activities in the G7, 2000-2023

Source: OECD
Note: USD per worker, PPP converted, constant 2020 prices (adjusted for inflation). Data are for professional, scientific and technical activities; administrative and support service activities. No data available for Japan.

Exports in the creative industries

The creative industries sector covers industries which have their origin in individual creativity, skill, and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property.

The United States has a dominant position in creative industry exports, with over $250 billion worth of exports in 2023, more than twice the next best G7 nation.

The UK’s creative services perform well compared with the rest of the G7. UK exports reached a high of over $100 billion in 2023, behind only the United States. Indeed, the value of the UK’s creative services exports has grown by 167% since 2010, the fastest growth of any G7 nation.

Figure 9. Value and growth of creative services exports, 2010-2023

Source: Economics Observatory, using UNCTAD
Note: No data available for Italy.

Jobs in advanced manufacturing sub-sectors

Within the broad IS-8 sectors there are many sub-sectors at differing stages of maturity. For example, advanced manufacturing consists of six sub-sectors: advanced materials, automotive manufacturing, aerospace manufacturing, agri-tech, batteries and space.

Figure 10 shows that automotive manufacturing and aerospace manufacturing – as more established industries – employ the highest share of people within UK advanced manufacturing. In contrast agri-tech and batteries make up a smaller share of employment. But these sectors are strategically significant as enablers of the wider economy. Agri-tech has the potential to affect food security and prices, while batteries are a critical part of the wider shift to renewable energy.

Figure 10. Share of UK advanced manufacturing employment by sub-sector, 2015-2024

Source: Economics Observatory using BRES via NOMIS
Note: Automotive manufacturing SIC 29, aerospace manufacturing SIC 303 & 3316, agri-tech SIC 283, batteries SIC 272. No SIC codes provided for advanced materials or space.

What are the regional opportunities within the UK?

The UK’s Industrial Strategy recognises the importance of place and local areas to delivering growth. Frontier sectors often benefit from regional clusters, where technology, skills, and innovation can spill over from one business to another (what economists call ‘agglomeration benefits’). This leads to benefits for both the sectors involved and the local areas attracting investment and jobs.

The current location of employment in four of the IS-8 sectors is shown below: advanced manufacturing, creative industries, digital and technologies and life sciences. Also included on the maps are existing regional clusters in each sector identified in the Industrial Strategy.

Advanced manufacturing and life sciences already demonstrate strong regional clusters, with employment more heavily focused in a few areas. For example, a life sciences campus is being developed in Stevenage, capitalising on the existing strength of the sector in the area. Meanwhile, the creative industries and digital and technologies sectors currently have employment more widely dispersed across the south of England, alongside some clusters in other regions.

Figure 11. UK regional employment shares in selected IS-8 sectors, 2024

Source: Economics Observatory using ONS Business Register and Employment Survey via NOMIS
Note: Employment shown at Local Authority level. Dots represent city regions and clusters identified by the government in the Industrial Strategy.

Conclusions

The UK’s Industrial Strategy identifies eight sectors with high economic potential and an opportunity for government policy to accelerate growth. The UK’s starting position relative to the rest of the G7 varies between these sectors.

The UK is among the world’s leading nations in financial services and professional and business services, with both already making substantial contributions to the UK economy. But both sectors will need to unlock productivity growth that has been missing in recent years for the UK to retain its seat at the top table.

The creative industries are already an export success story for the UK, having shown rapid export growth in recent years.

Sectors such as clean energy and digital and technologies (especially AI) are important enablers of the wider economy. The UK government has identified reducing energy costs as a key policy goal, both to ease the burden on household bills and for energy-intensive industries. AI has a seemingly endless list of potential applications, in both frontier sectors and conventional businesses alike.

Underneath the broad national sectors of the IS-8 there are also opportunities in sub-sectors and for regional growth. Sectors such as advanced manufacturing and life sciences are truly frontier industries and already have established economic clusters with the potential to attract investment, high skilled jobs and business growth.

Ultimately, the success of the Industrial Strategy will hinge on its ability to address the UK’s long-standing productivity stagnation and attract investment in skills and innovation at both the local and national levels.