The investment gap between Europe and the United States is widening, according to a research briefing from Oxford Economics.
The analysis by the Oxford-based company forecasts that private investment in the US will increase by 40% in real terms between 2021 and the end of 2027, whereas the average for France, Germany, Italy and the UK will be just under 12% over the same period.
The main cause of this gap is AI, a sector which the US dominates, and without which investment in American businesses would have actually declined since the fourth quarter of 2024.
Yet as Oxford Economics’ research makes clear, other factors have disadvantaged Europe, including rising oil prices and ongoing tariffs, while the advisory firm’s lead economist suggests Europe deals with more red tape, a less dynamic labour force and a smaller market for capital investments.
The US leading in most sectors, including AI
There have been other recent signs that the UK and Europe are falling behind the US in terms of investment, with KPMG’s Pulse of Fintech H1 2026 report indicating that funding for UK-based fintech companies dropped to a ten-year low of $2 billion in H1.
While the UK continues to lead all other EMEA countries for fintech investment, the steep decline has come as global fintech funding actually rose to a four-year high of $103.1 billion, boosted mainly by the $86.9 billion raised in the Americas.
The UK has actually enjoyed an increase in investment in all sectors in the first six months of the year, according to PitchBook data, yet its total of $19.5bn pales in comparison with the $415bn of venture capital invested by American firms.
86% of this capital has been invested in AI startups, underlining just how much the boom in artificial intelligence is driving current growth in the US.
Dr. Daniel Harenberg, the Lead Economist at Oxford Economics, confirms this overview, while also confirming that AI is the main factor in the big investment gap between the US and Europe.
“For the US, between mid-2023 and the end of 2027, private investment growth was mostly AI related,” he says. “For the euro area (not Europe), a much smaller part was AI related.”
Geopolitics and economics also weighing down Europe
According to Harenberg, the gap between the US and the eurozone has actually widened in recent years, increasing by 7% since 2024.
Aside from the explosion in AI, the report makes it clear that political and economic developments have been another significant factor in Europe’s failure to keep pace with the States.
The oil supply shock stemming from the Iran war has resulted in Oxford Economics reducing forecasts for Germany, France and the UK by between 0.6% and 0.8% in comparison with its February baseline.
However, Harenberg affirms that the gap isn’t really about oil prices, and that the US economy has several inherent characteristics which lend themselves to greater business investment.
“The US is a more dynamic economy, more entrepreneurial, with less red tape and higher and faster rewards to innovation,” he says. “A more dynamic labour market and a larger capital market for risky early-stage financing also help.”
Companies should take a more dynamic approach to innovation and investment
Other analysts suggest that the UK and Europe could reduce the gap to the US, but not without significant investment from public and private sources.
This is the view of Claire Reid, the Chief Technology and Innovation Officer at PwC UK, who argues that the gap isn’t really about a lack of talent, given that Europe is home to a large pool of capable researchers and entrepreneurs.
“The challenge is turning innovation into scaled commercial success,” she explains. “To close the gap, business and policymakers will need to continue investing in digital infrastructure, data platforms, compute capacity and the skills needed to support them.”
The EU and the UK have each recently launched initiatives aimed at boosting growth in their respective tech sectors, such as the EU’s Tech Sovereignty Package (announced in June) and the UK’s Sovereign AI Unit and Hardware Plan (announced in April and May).
These packages include provisions for funding, as well as frameworks for the accelerated development of data centres and other infrastructure, potentially creating the conditions for more sustained investment in British and European tech.
Aside from public support, Reid notes that private investors and enterprises will actually have to step up and commit to not only long-term investment, but far-reaching digital transformation.
“The organisations pulling ahead, particularly in the US, are making bigger, longer-term investments in the technology, data and operating models that allow AI to move from experimentation into transformation,” she says.
In order to attract greater investment, businesses may need to demonstrate greater ambition, something which Reid says not enough companies in the UK and the EU are currently doing.
“If more European businesses can see AI as a means to grow revenues, create new products and enter new markets, the case for greater investment becomes much stronger,” she suggests. “That can create a virtuous circle, with ambition attracting greater investment, which in turn gives businesses more opportunity to innovate and scale.”
