Demand for IT and business services in Europe reached a record high in the second quarter as businesses try to cut costs.

According to new figures from global technology research firm ISG, firms spent $7.8 billion in the second quarter, which is an increase of nine per cent compared to the first quarter of 2023.

Businesses in the UK spent $1.5 billion on IT services, around 50 per cent higher than the same quarter last year. The DACH region saw a 16 per cent increase in spending, which reached $894 million.

Elsewhere France saw a 20 per cent decline, spending $393 million on IT services, likely driven by weaknesses in the telco industry.

Traditional IT outsourcing contracts, also known as managed services, saw a 15 per cent increase in total value, with European organisations investing $4.5 billion in 283 of these contracts.

However, spending on cloud-based services dropped eight per cent to £3.3 billion. Spending on infrastructure as a service also fell by 13 per cent to $2.2 billion, while firms spent $1.1 billion on software-as-a-service (SaaS).

“Growing demand for managed services reflects the role outsourcing plays as a lever for cost optimisation, especially in the face of weak economic conditions,” said Steve Hall, president of EMEA for ISG. “The slowdown we’ve been seeing in China’s hyperscaler market is now spreading to the big three (AWS, Microsoft Azure and Google Cloud).

“Enterprises that scaled up quickly during the pandemic are now rationalising their cloud costs.”

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