The UK was beaten into third place by the US and Finland in the DTI's (Department of Trade and Industry's) survey of world research and development budgets, released yesterday.
Over 500 global companies which took part in the study revealed they had increased their research and development budgets by as much as 10 percent in 2000 with total expenditure of up to £197bn, said the report.
"Levels of expenditure on R&D have been rising steadily over recent years," said Science and Innovation Minister Lord Sainsbury. "But we need to see substantial further growth if our companies are to bring innovative global products and services to the market and remain internationally competitive."
Although the study focused on all areas of business, the importance of research and development in IT fields was highlighted, with 27 percent of all R&D being accounted for by the IT sector.
"It's pretty obvious how important R&D is to the IT sector," said a spokesman at the DTI. "It's the difference between being an innovator and a follower."
Computer manufacturer HP and electronics giant Sony spent over £400m between them on worldwide research projects last year and both companies said they expected to exceed that figure over 2001.
But despite coming a respectable third, and beating Japan which surprisingly ranked fourth, the DTI remained disappointed with the general level of investment in this area.
Dr Mike Tubbs, an industrialist with the DTI and the report's author, said firms should use the scoreboard, which contains details of all companies' R&D spending, to help them decide if they are investing the right amount compared to their competitors.