The U.S remains the most competitive place in the world in which to do business, with Britain's prospects threatened by high taxes and excessive regulation, according to a survey by consultancy Deloitte.
Britain, by comparison, comes sixth out of 25 in the Trading Places Competitiveness Index report.
More worrying for British businesses is the finding that the UK could slip to 12th if government and businesses do not take action now.
The index is based on an analysis of the key drivers of wealth creation – innovation, enterprise, investment and macroeconomic data.
It includes a survey of 300 UK business leaders who provide their perspective on the UK's business environment today as well as predictions for the future.
The UK comes among the top five countries when measured on macroeconomic stability and enterprise.
But on skills, innovation and tax/regulation, Britain is significantly lower in the rankings.
David Owen, Deloitte partner, said: "Despite a strong performance when benchmarked against the world's most competitive countries, the Deloitte Competitveness Index's underlying trends illustrate that the UK risks a fall in the rate of growth of GDP and deceleration of wealth creation.
"What needs to be recognised now is that business leaders and government have tremendous power to force positive change to reverse the potential slide," he added.
"The UK is at a critical point in its evolution as a centre for global business and its challenge is to turn accelerating globalisation into competitive advantage," Owen continued.
"Addressing the challenge should be a shared agenda for business and government. Business leaders will need to ensure that the opportunities of a global market are taken, whether it is through reshaping business processes or building capabilities to evaluate constantly their network operations globally," he said.
In the UK between a fifth and a third of all functions were located abroad, but this would need to be kept under constant review in order to tap the global market, Owen argued.
"For their parts Government must concentrate on further policy reforms to ensure they remain in line with the world's best practices," he said.
"Recent initiatives by the UK Government have gone someway to bolster business optimism and could lead to improvements in both the innovation, and skills rankings in the next five years.
"However, the perception among business leaders is that tax and regulation need to be addressed to sustain and build on the UK's position," he added.
"A greater focus on R&D expenditure and smarter, rather than more, regulation should be a priority," Owen concluded.
The U.S, by comparison, has a strong performance across all sectors, with a particular strength as 3.2 per cent of its GDP is invested in R&D.
Nordic countries including Sweden, Finland and Denmark followed closely behind with strength in innovation and investment, while Germany was placed 5th in the ranking owing to its strong innovation base, enterprise and investment environment, said Deloitte.
In emerging countries, South Korea was the front runner ranked at 13, followed by India at 22 and China at 24.
These countries were all expected to climb the ladder creating a tougher trading environment for continental Europe, said the survey.
Owen added: "The Deloitte Competitiveness Index shows the long term mechanisms by which a country becomes wealth creating and in spite of the current low ranking of China and India their economic prowess should not be underestimated.
"For instance, since the 1970s South Korea has created an environment in which innovation, skills and enterprise have fostered, and in ten years South Korea has moved from 22nd place to a forecasted 5th place by 2010," he added.