Chronological coverage updated 12th September 2026 12:14.
Update 1 · 12th September 2026
UK AI Strategy Requires Heavy Hardware Investment to Avoid Stagnation, Think Tank Warns
The UK risks losing out on the long-term economic gains of the artificial intelligence transformation unless public policy pivots aggressively toward physical hardware manufacturing, according to a report by the Tony Blair Institute. The policy paper recommends lifting manufacturing's share of UK gross value added (GVA) from its current 8% to 10% by 2031, with a long-term target of 12% to 14%.
While Britain ranks third globally for venture capital attraction behind the US and China, domestic investment remains overwhelmingly concentrated in software applications rather than physical computing infrastructure, power systems, and advanced hardware components.
UK software startups attracted £19.7 billion in funding, compared to £1.84 billion raised by hardware developers..
Addressing supply chain bottlenecks
The report argues that the primary constraints on artificial intelligence adoption are physical bottlenecks—specifically the supply of specialized microchips and data center power capacity. Consequently, nations capable of manufacturing hardware components will capture greater long-term value than those relying solely on software application layers.
Bmmagazine reportedly quoted Tony Blair Institute (policy think tank report) as saying: “The real winners will therefore be the countries that not only adopt AI, but create the physical things that AI depends on.”.
Worldwide semiconductor revenue is forecast to grow 92% year-on-year to reach $1.6 trillion in 2026..
To bridge the financing gap, the institute recommends redirecting public financial institutions, recommending that at least 20% of undeployed National Wealth Fund capital be allocated to physical tech infrastructure. The recommendation coincides with existing government commitments, including a £1.1bn hardware initiative and designated regional technology growth zones.
- A new policy report warns that software-focused investment strategies leave the UK vulnerable to hardware bottlenecks.
- Ministers are urged to direct public wealth funds toward physical computing infrastructure and advanced manufacturing.
