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Why the UK tech sector is proving so resilient to Covid-19

Two robotic manufacturing machines at work in pink lighting.

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Young UK tech firms raised £4.2 billion in the first half of 2020, according to a report from government-backed Tech Nation. That’s more than the rest of Europe put together. As of Q3, KPMG reports that the sector is on a “solid growth path”.


So why is the UK tech sector proving so resilient to the pandemic? Here are some key factors:


The UK started from a position of strength


In 2019, the UK tech sector grew 6x faster than the wider national economy, outstripping the US and China to lead global growth. Here in the South West, tech investment outstripped many other regions of the UK including Scotland, itself a thriving tech hub.


The UK’s world-class universities are hotbeds for innovation, and the sector enjoys deep pools of investor capital. With its dominant position in financial services, the UK is also a natural home for high growth FinTechs, which account for 39% of 2020 tech investments.


The tech sector is also supported by high-quality services in areas such as accounting and law, and has a highly skilled and diverse workforce.


Tech fuelled by new demand


Remote living has seen demand soar for e-commerce, cloud infrastructure, security software, EdTech, and many more digital services. A recent McKinsey survey of executives revealed that since the pandemic, businesses have brought forward the planned  digitisation of their operations by an average of three to four years.


What’s more, most expect these changes to be long lasting and are already investing to ensure they continue post-COVID.


In the South West, some 4,170 online shops opened during the pandemic, more, in relation to the total number of businesses in the region, than any other part of the UK. Local digital providers, like Devon-based LimeCloud, have subsequently been ‘inundated’.


Government investment in innovation


The UK government put innovation at the heart of its recovery plan with a £1.25 billion coronavirus package comprising:

  • a £500 million Future Fund for high-growth companies impacted by the crisis
  • a £750 million Innovate UK fund specifically designed to boost economic recovery and to ‘fast track’ projects with the greatest potential.


Innovate UK’s ‘Business-led innovation in response to global disruption’ competition attracted a record breaking 20,000 applications, with 800 businesses funded including a 70% uplift in women-led projects compared to previous years.


Meanwhile, Enterprise Europe Network has been tasked by Innovate UK to protect these investments by delivering critical on-the-ground support to Innovate UK grant beneficiaries, helping to ensure they survive and thrive.


Tasked with providing bespoke recovery plans and deploying relevant specialists in funding and finance, leadership, R&D, sales and marketing, design thinking and more, Enterprise Europe Network has worked tirelessly to help restore these innovative businesses to their original growth trajectories.


With this combination of support and funding, the success of these high growth innovators will help create new jobs and support the speedy recovery of the UK’s economy.


Long-term R&D projects kept on track


Innovate UK’s investments in additional grants and loans to their existing base of grant beneficiaries has helped protect projects from becoming derailed. In addition, sensitive treatment of project financial requirements for match and other investments has helped projects stay on course.


University spin-outs, focused on long-term high-tech development projects, have suffered relatively low levels of disruption during the pandemic. A staggering 70% have secured equity investment during 2020, compared with 54% of all high-growth companies.


FluoretiQ, a diagnostics company born out of the University of Bristol, neatly illustrates the above points. It filed two patents during the first lockdown and, with help from Enterprise Europe Network, has secured an Innovate UK Scholars Secondment grant, funding two PhD researchers for 18 months. The company is now moving to commercialise its solution for the rapid detection of infections.


A changed landscape for innovation


According to a UK Tech News survey, almost half (47%) of UK tech businesses pivoted their offering in some way between March and August 2020. Of those who pivoted, 61% plan to stick with their new approach after the pandemic subsides. This accelerated innovation demonstrates how product and service improvements can be identified and implemented in adversity, and how markets have already flexed with demand changing post-COVID.


Cornish facial recognition innovator, TouchByte, rapidly pivoted its offer from the retail and hospitality sectors to focus on construction, enabling Covid-secure, touch free access to building sites. EEN supported TouchByte in securing a £50k Innovate UK grant for the pivoted project, enabling the company to hire young local talent and create thriving technology careers.


The crisis has also created fertile ground for new innovation. In March, two old school friends from Bath decided to create wearable contact tracing devices that light up and vibrate when users get too close. SpaceBands is now fulfilling orders in numerous industries in the UK and around the globe, using EEN to help identify funding sources and suitable partners for distribution and development.


Confidence in innovation investment


A new Lloyds Bank survey indicates that UK financial institutions are planning for a year of investment in new technology, despite the uncertainties posed by Covid-19.


Nine in ten say tech investment is a top strategic priority for the next 12 months, with two-thirds planning to increase investments and a third planning a special focus on Fintech.


Bristol and Bath boast one of the strongest FinTech ecosystems in the UK, a sector that thrived throughout the pandemic as legacy systems came under pressure. The 107 FinTech businesses between the two cities will now be looking to capitalise on gathering momentum.


Not all is rosy, however. 12,000 UK Aerospace jobs are now lost or at risk owing to the collapse in travel. As Paula Byers, founder of tech cluster Digital Northern Devon, puts it, “it’s a case of feast and famine”, and some other tech sectors have not fared so well.


Recovery will, however, be fuelled by innovation and technology; and the UK tech sector as a whole has already shown remarkable resilience, adaptability and strength in maintaining its preeminent position.


With the right support, the sector will lead a speedy national recovery to economic prosperity.

Innovate UK
Innovate UK is the UK’s innovation agency. Learn about how we can help you achieve your innovation goals.