The CBI is urging the government to focus on greater funding for innovation and science in the upcoming Comprehensive Spending Review.
"...innovation investment has never been more important, given its effect on enhancing productivity," said CBI director general, John Cridland.
The business lobby group revealed that the government spends just 0.49% of GDP on research and development, the lowest percentage in the G7.
The CBI is calling for the government to increase spending on research and development in innovation and science to 3%.
Mr Cridland said: “While our economy is doing well, we must not be complacent, as we cannot afford to rest on our laurels while our peers pace ahead.
“Instead we need to build on our research excellence by fuelling the UK’s innovation ecosystem with investment, fresh ideas and skills.
“With the UK’s research and development spending the lowest among the G7, we are falling ever further behind our international competitors and must take action so that we lead from the front.”