London to become global knowledge hub

Watch out America. Within eight years London will be rivalling New York, Silicon Valley and Hollywood as the world's hub for, respectively, finance, internet-based start-ups and digital special effects.

These contentious predictions have been made in a new report looking at how Britain's economy and business landscape is set to develop over the coming years.

But the Developing the Future study by Microsoft, consultancy Intellect, the British Computer Society and London's City University has also predicted some serious problems for the UK by 2015, most notably a chronic shortage of skilled IT graduates to service its booming industries.

In fewer than three years' time, the report argued, more than half of Britain's GDP will be generated by people who create "something from nothing", with the economy rapidly developing into a fully-fledged knowledge-based economy.

Scotland ("Silicon Glen") and regions such as Cambridge ("Silicon Fen") and the Thames Valley will become ever more important centres for innovation.

But this growth will pose a skills challenge. The UK's IT industry is growing at five to eight times the national growth average, and therefore needs some 150,000 new starters each year, the report argued.

Yet between 2001 and 2006 there was a 43 per cent drop in the number of students taking A-levels in computing. Moreover, only a tenth of the IT industry was female, meaning a vast potential pool of talent was being overlooked.

Gordon Frazer, managing director of Microsoft in the UK and vice-president of Microsoft International said, by 2015, the nature of offshoring would have changed completely, too.

Globalisation will have long since migrated the old manufacturing industries abroad, he said.

"But the second wave of off-shoring will involve locating routine back office functions to developing countries such as India and China, enabling UK companies to concentrate on the research and development needed to bring world-beating new products and services to market first.

"Cities like Liverpool and Newcastle will win international reputations as a result of their thriving multimedia industries," he added.

"In order to attract the cream of the IT graduates starting to stream out of Britain's universities, these regional cities will be working overtime to improve their quality of life. This is proving to be even more important than ever before as technology will enable professionals to work from wherever they wish," he predicted.

"In the summer, many people will prefer to work from home, running their global office from a laptop on the garden table. But for those who do make the journey into work, the surroundings will be need to be equally convivial," Frazer continued.

"Anxious to attract the best minds and give them the most productive environments in which to collaborate with one another, companies will increasingly occupy Silicon Valley-style campus locations.

"Abandoned or run-down industrial estates on the edges of provincial cities will rapidly be transformed into green landscaped Californian-style campuses," he forecast.

Tom Wills-Sandford, deputy director-general of Intellect, said there was currently a trans-Atlantic innovation divide.

"The UK does not spawn start-ups and fast-growth new companies in the same way as Silicon Valley just because of a difference in business philosophy, as is often supposed," he explained.

"It is as much to do with public sector attitudes to encouraging growth and innovation. Encouraging innovation will be key to the future success of the UK economy and we believe this report addresses some of the most important ways in which these challenges can be met," he concluded.