Lurking in the shadows: The fourth industrial revolution in the UK

In the first of a series of exclusive articles for Interactive Investor, Andrew Darley, head of technology research at broker finnCap, discusses the key themes shaping the 'fourth industrial revolution' from a UK perspective.

We are in the inception stages of the 'fourth industrial revolution' which is being led by advancements in digital infrastructure, automation and the analytics potential created by big data but the UK is lagging behind due to misplaced priorities.

Our ongoing dialogue with UK technology companies is providing valuable insight into some key themes that are shaping this revolution from a UK perspective. Amongst others, these include British competitiveness in the wake of Brexit, the role of the private sector in propelling the UK forward and, of course, whether regulation is helping or impeding progress.

Despite the uncertainty that followed the results of the referendum, investors backed UK technology companies with £6.7 billion in 2016, according to data from London & Partners. The digital technology sector also accounts for 1.6 million jobs (many of which will be preserved thanks to Trump's travel ban, but potentially threatened by Brexit restrictions) and offers salaries that are 36% higher than the national average.

However, if we are to stay ahead of the curve on the global stage, or at least on par with Asian economies like Singapore and China, investment in technological infrastructure is imperative if we are to foster ongoing innovation in robotics, artificial intelligence (AI), and augmented reality (virtual reality, haptics and holograms).

Does Britain stand a chance?

Britain cannot currently compete in the internet age given the backward looking investment in railway infrastructure – a move that falls within the realms of the original industrial revolution, which involved bolstering railways and canals to give us the infrastructure for global clout.

The £22 billion to be spent on merely the first section of HS2 highlights the paltry view of government, compared with under £1 billion of funding to deploy fibre for the whole UK.

In addition to fibre scale bandwidth, it is power and security which are the foundation stones necessary for any other opportunities to have a chance of commercially materialising. Right now, we are overwhelmed with potential and underwhelmed with delivery.

If we consider that the AI market is forecast to grow from $643.7 million in 2016 to $36.8 billion by 2025, with almost every sector exploiting its potential, the UK will be left behind if attention is not given to creating an appropriate environment for AI to develop unhindered.

AI's growing capacity to solve a variety of challenges means that large established companies cannot afford to ignore it, not only for product integration, but also to maximise business efficiency.

Last month, Ford bought a $1.3 billion stake in Pittsburgh based Argo, a start-up providing a solution to assist its driverless vehicle program. We need to create an environment where we have the technological backbone to generate the innovative capacity for the UK to continue to shine.

Evolution, not revolution

European regulation will open up the market for fintech challengers: the Payment Service Directive 2 (PSD2) forces over 5,000 European financial institutions to provide open and integrated access to customer, transaction and payment information via application programming interfaces (APIs).

However, this is merely helping to push forward the evolution of technology, not pave the way for a revolution. The chancellor's £270 million commitment in the recent Budget to invest in 'disruptive technologies' may sound impressive, but in the light of the vast ocean of innovations in the newest second-generation technology space, it is a rather meagre figure.

Understandably, with all the benefits that the likes of analytics, AI and robotics brings, there are inevitably concerns about the implications of automation on jobs, as well as fears over security due to the nature and scale of data exchange involved. However, for every obstacle in the way of expansion of the second-generation technology universe, solutions open up white spaces of opportunities, renewed investment, and a roster of new jobs in the fields of development, testing, integration and security work.

Not only do we need researchers, innovators and well-rewarded teachers, but also those with business management skills capable of successfully commercialising new technologies.

Both the government and the private sector have crucial roles to play. The private sector is accommodating what educational directives are not, with the likes of Spotify and AOL opening their doors to school children (and importantly both boys and girls) to enthuse them about a career in Science, Technology, Engineering and Maths.

However, enterprise cannot flourish with inadequate infrastructure and an unsupportive environment, where resources are being allocated with little consideration being given to long-term value or growth.

The government must re-examine its priorities - investing in infrastructure appropriate to the first industrial revolution will only produce marginal results. The UK must play catch up as a matter of necessity, but should start leading the way as a matter of choice. A lack of support for significant fibre deployment across the country is equivalent to an abdication of responsibility by any government which supports the demonstrable innovation potential Britain has maintained since the Spinning Jenny.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.