Code, Capital, and Clusters: Understanding Firm Performance in the UK AI Economy

arXiv:2602.06249v1 Announce Type: new
Abstract: The UK has established a distinctive position in the global AI landscape, driven by rapid firm formation and strategic investment. However, the interplay between AI specialisation, local socioeconomic conditions, and firm performance remains underexplored. This study analyses a comprehensive dataset of UK AI entities (2000 – 2024) from Companies House, ONS, and glass.ai. We find a strong geographical concentration in London (41.3 percent of entities) and technology-centric sectors, with general financial services reporting the highest mean operating revenue (33.9 million GBP, n=33). Firm size and AI specialisation intensity are primary revenue drivers, while local factors, Level 3 qualification rates, population density, and employment levels, provide significant marginal contributions, highlighting the dependence of AI growth on regional socioeconomic ecosystems. The forecasting models project sectoral expansion to 2030, estimating 4,651 [4,323 – 4,979, 95 percent CI] total entities and a rising dissolution ratio (2.21 percent [-0.17 – 4.60]), indicating a transition toward slower sector expansion and consolidation. These results provide robust evidence for place-sensitive policy interventions: cultivating regional AI capabilities beyond London to mitigate systemic risks; distinguishing between support for scaling (addressing capital gaps) and deepening technical specialisation; and strategically shaping ecosystem consolidation. Targeted actions are essential to foster both aggregate AI growth and balanced regional development, transforming consolidation into sustained competitive advantage.