UK Innovation Firms Are Betting on Britain — But Procurement Is Killing the Momentum

EBM NEWSDESK ANALYSIS-By Nick Staunton, Editor-in-Chief

Britain’s tech and innovation sector is bullish on domestic growth — but a procurement system mired in delays and opacity is throttling cash flow and making it harder for banks to lend against future revenues.

Confidence Is High. Revenue Visibility Is Not

The headline finding from Barclays’ latest Business Prosperity Index — drawn from 501 UK tech and innovation firms — is one of genuine ambition. Seven in ten firms are upbeat about their prospects over the next twelve months, and more than half are planning their next major phase of growth in the UK rather than looking offshore.

That confidence is translating into capital commitments. Ninety-seven per cent of firms expect to increase spending on compute, cloud or data infrastructure over the next year, with nearly seven in ten anticipating investment growth of at least twenty per cent. For a sector that has spent much of the past two years navigating post-pandemic headwinds and tightening venture markets, that is a significant statement of intent.

But beneath the optimism, a structural problem is emerging. Half of all firms report customers pausing or delaying spending, creating unpredictable revenue pipelines that are increasingly difficult to finance. Fifty-four per cent say procurement timelines have worsened over the past two years. Fifty-six per cent cite legal, compliance and security barriers as a drag on sales cycles. As we have previously examined in our coverage of how Europe’s defence spending surge is reshaping industrial procurement across the continent, the gap between political commitment to innovation and the operational reality of getting paid for it is widening — and the UK is not immune.

The Banking Problem Nobody Is Talking About

Helena Sans, Head of Innovation Banking at Barclays UK Corporate Bank, was direct about the consequences: “Where procurement timelines are unclear and pipeline visibility is limited, it becomes harder to lend against that future income, making greater transparency — particularly in public sector pipelines — critical to unlocking growth.”

That framing matters. The issue is not simply that firms are waiting longer for contracts. It is that opacity in public sector procurement is actively constraining the financial system’s ability to back British innovation. When a lender cannot see when a contract will be awarded or what the payment schedule looks like, lending against that future income becomes a credit risk calculation that rarely resolves in the borrower’s favour.

Twenty-eight per cent of firms specifically cite a lack of transparency in public sector procurement as a key challenge. For a government that has staked significant political capital on positioning the UK as a global AI and technology hub, that figure should be deeply uncomfortable. The contrast with how the EU’s tech sovereignty package is mobilising public procurement as an active industrial policy tool is stark.

Defence Is the Bright Spot — and the Exception

Barclays’ own anonymised transaction data from around 26,000 UK innovation businesses tells a more granular story. Overall cash inflows into innovation business accounts declined 4.9 per cent year-on-year in Q1 2026 versus Q1 2025. But the picture varies sharply by sector.

Computer hardware businesses — including data centres — recorded a 7.1 per cent rise in cash inflows and a 14.9 per cent increase in international payments received. Data processing firms saw cash inflows rise 5.0 per cent. Defence-focused businesses recorded a 13.1 per cent increase in cash inflows — the strongest performance across the entire innovation cohort. Science and engineering R&D firms, by contrast, saw cash inflows fall 9.5 per cent.

The divergence is not coincidental. Fifty-seven per cent of firms say they are now actively targeting defence and national security markets, with 62 per cent adapting their products and services to meet defence customer requirements. Ninety per cent say the UK and its allies must build stronger space capability to remain globally competitive over the next decade. As we reported in our analysis of how the Iran conflict is accelerating European defence technology investment, the security premium now embedded in technology procurement is reshaping where innovation capital flows — and which firms attract it.

Funding the Next Wave

Loan volumes across the sector increased 0.9 per cent, with 29 per cent of firms citing bank lending as one of their most important financing routes over the next twelve months — behind private equity at 36 per cent and government grants at 33 per cent. Barclays has made its £22 billion Business Prosperity Fund available to provide lending and refinancing to eligible clients across the UK, alongside its dedicated Innovation Banking division which supports firms from early-stage development through to IPO.

Mark Northen, Head of Innovation Banking at Barclays Business Banking, acknowledged the tension: “Many firms are taking a cautious approach to borrowing as they navigate slower routes to revenue and visibility barriers. At the same time, sectors such as defence infrastructure and computer hardware are showing strong growth potential.”

Inbound international payments to innovation SMEs rose 2.0 per cent — against a 1.8 per cent decline across all business banking SMEs — suggesting that even as domestic procurement stalls, British innovation is finding buyers abroad. That is a useful data point, but it is also a warning sign. A tech sector that has to look overseas to find reliable revenue because domestic procurement is too slow and opaque is not a sector that will stay home indefinitely.

Barclays’ own Ones to Watch: AI 100 report, recently published by Eagle Labs, attempts to map the next wave of UK AI scaleups. The ambition is clear. Whether the procurement infrastructure exists to commercialise it remains the open question. For a broader read on how private capital is navigating these financing gaps, our coverage of BlackRock’s private credit warning and Europe’s payments infrastructure challenge sets the context for where institutional money is — and is not — flowing right now.