Leading British companies increased their investment in research and development (R&D) by 9% in 2006, a government report has said.
The UK's top 75 firms grew their R&D faster than the global average
The top 850 firms spent £21bn on R&D last year, with the pharmaceuticals sector being the largest R&D investor.
The fastest R&D growth of 54% was reported in fixed-line telecoms.
"Innovation will be a key driver of UK prosperity in the decades ahead," said Science and Innovation Minister Ian Pearson.
Business organisation CBI welcomed the findings of the government's R&D Scoreboard, calling it "excellent news".
"For our businesses to remain competitive in an increasingly globalised economy, it is essential they invest in R&D, skills, software, intellectual property and design," CBI director general Richard Lambert said.
He added that the UK government needed to become "more ambitious in its use of public procurement and police strategy to stimulate investment and create new markets for innovation in the UK".
The report, published by the Department for Innovation, Universities and Skills in collaboration with the Department for Business, Enterprise and Regulatory Reform, showed that the UK's 75 biggest firms increased their R&D spending faster than the global average of 10%.
Worldwide, companies registered in five countries - the USA, Japan, Germany, France and the UK - contributed 81% of the R&D done by the top 1250 global firms.
Pharmaceuticals companies have become the top global investors in R&D (16% growth), overtaking technology hardware firms (13% growth).
The software and aerospace and defence sectors increased their R&D spending by more than 12%, above the global average.