UK backs innovation hub Cambridge — expansion tests city’s limit

This report is taken from this week’s CNBC UK Stock Exchange newsletter. Like what you see? You can subscribe here.

Mission

The UK economy, along with many of its peers in continental Europe, faces entrenched challenges. These factors include a high debt-to-GDP ratio, a high deficit-to-GDP ratio, and an aging population that places increasing demands on the country, at a time when growth is stagnating.

All is not lost, however The event, held last Thursday, highlighted how some regions are continuing to expand aggressively and, more importantly, attract inward investment in the kind of activities that will help Britain earn a living in the world for decades to come.

More than 500 CEOs, founders, investors and policy makers attended Innovate Cambridge Summit, a body that aims to promote the city and the region as a whole as one of the world’s leading life sciences and technology centres, which hosted its annual summit.

Among them was Patrick Vallance, the Minister for Science, Research and Innovation, a veteran of the UK life sciences sector who once headed R&D at GlaxoSmithKline. There were also Zubin Ghahramani, vice president of research at AI pioneer Google DeepMind, and Nigel Wilson, former CEO of life insurance giant Legal & General, who now heads venture capital firm Cambridge Innovation Capital and Canary Wharf Group.

Attendees learned that over the past decade the Cambridge region has enjoyed the strongest economic growth and is now the most invested center for science, outside London, of any region in the UK.

In the process, it is increasingly attracting international investment. A report published by Innovate Cambridge in partnership with Cambridge Innovation Capital, data provider Bowhurst, and Cambridge Enterprise (the commercial arm of the University of Cambridge), revealed that since 2015, early-stage life sciences and deep technology companies in the region have raised £7.9 billion (US$10.5 billion), two-fifths of which came from international investors. That was up from just 7% a decade ago, with US investors showing particular interest, participating in nearly one in five Cambridge funding rounds during that period.

The numbers come five months after data provider Dealroom said Cambridge now ranks second globally — behind the San Francisco Bay Area — in terms of the number of startups (startups that achieve a billion-dollar valuation) per capita, comfortably ahead of leading tech and life sciences hubs like Boulder, Boston and New York. The most famous of these companies are Wayve, the self-driving technology company, and Quantinuum, the quantum computing company, but they are not isolated examples.

So far, very encouraging. However, there was also a sense at the event that future growth may be at risk because Cambridge’s massive expansion has not been matched by similar growth in private and public infrastructure.

A report published by Cambridge City Council in March this year noted that “there remains high demand for housing and a significant need to build new homes locally.” She noted that with local home price-to-income ratios so high by historical standards, there is a desperate need for affordable homes of the kind needed by key workers such as nurses, teachers and firefighters.

This was echoed by a report that same month in Varsity, the independent student newspaper affiliated with the University of Cambridge, which stated that many PhD students – the same people who are frequently involved in start-ups – no longer lived in the city.

The report noted: “With academic salaries being what they are now, even top Cambridge professors would have a hard time getting onto the city’s property ladder. What kind of prospect is that for a young graduate?”

The scarcity of housing, whether for purchase or rent, is a major potential barrier to future growth.

Other factors contributing to the housing shortage include scarcity of water and supporting infrastructure. The east of England is drier than the rest of the UK, with Anglian water supplying the area outside the city, suggesting that parts of it have less rainfall than Israel.

Concerns about water scarcity and sustainable supply reached a peak when, between December 2022 and November 2023, the Environment Agency – the government body that seeks to protect and improve the environment – blocked the construction of more than 9,000 homes and 300,000 square feet of laboratory space in the greater Cambridge area.

Another potential drawback is chronic traffic congestion: the university’s Department of Land Economics reported in June of this year that average daily journey times in the city rose 12% between 2022 and 2024 alone.

All of this is starting to impact growth, with the Cambridge region falling from fourth to sixth place in the Global Innovation Index over the past two years, having been overtaken by South Korea and Singapore.

Paul Williamson, senior vice president and general manager of IoT at Arm Holdings, told the summit that the UK was not keeping pace with chip designer growth. He revealed that although Arm, one of Cambridge’s greatest success stories, had only this week welcomed 325 new graduates to work in the city, it was increasingly having to “take a global perspective” and recruit staff elsewhere around the world.

“University Line”

The government is responding by trying to strengthen the entire Oxford-Cambridge ‘corridor’.

Rachel Reeves, the finance minister, last week announced a £500m investment package for new homes and transport links in the region, part of which will support the reopening of the ongoing railway line – the so-called ‘Varsity Line’ – linking Oxford and Cambridge, which was closed in 1967.

Vallance, who has become a household name during the pandemic with appearances on television almost every night as the government’s chief scientific adviser, told the summit that if the government achieved its targets, companies “that might have disappeared 10 years ago in the US” would remain in the UK.

He added: “This region has all the ingredients needed to be the UK’s answer to Silicon Valley or the Boston Group: a place that turns global innovation into economic growth that benefits the entire nation.”

But the fact that Vallance had to stress this last point highlights a widespread public sensitivity to the fact that growth and prosperity appear increasingly concentrated in a few locations, such as London, Oxford and Cambridge, with other areas being left behind.

This is a problem that the UK has faced for a very long time now.

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– Holly Eliatt

Need to know

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—Yu Boon Ping, Holly Eliat

Quote of the week

In the markets

London-listed stocks continued to perform well this week, with… FTSE 100 index It hit new highs on Tuesday, supported by a continued rally in global technology stocks. The UK index has risen by 2.9% since last Wednesday.

It’s been a busy week for earnings, as witnessed by the Gucci owner keyring, Porsche A group of banks are among those that announced their quarterly results.

the British pound It ended Tuesday’s trading at its lowest levels, declining by about 0.7% against the US dollar compared to the previous week. Returns to the UK Government 10-year bondsBritish Treasuries, commonly known as bonds, fell from last Wednesday, moving to 4.397 from 4.486 as investors anticipate the Bank of England’s decision on interest rates and interest rates. UK budget next month.

-Tasmin Lockwood

Coming

October 29: Bank of England mortgage data for September
October 31: Nationwide house price data for October
November 5: UK new car sales for October

– Holly Eliatt