Weakest UK tech sector growth for four years

Written by Peter Walker
25/11/19

Business confidence, growth and sales volumes are all in decline across the UK’s tech sectos, according to KPMG’s quarterly survey.

The latest analysis revealed a downturn in new work across the tech sector for the first time since the middle of 2012, due to softer global economic conditions and ongoing domestic political uncertainty.

Subdued business and consumer spending meant that UK tech companies experienced another slowdown in business activity growth during the third quarter of 2019 – with the loss of momentum widely attributed to delayed decision-making among clients.

While tech firms are finding growth more difficult to achieve, their performance remains stronger than elsewhere in the flatlining UK private sector, according to KPMG. The professional services firm’s data revealed a drop in new orders received by UK tech sector companies at the steepest rate of decline since the fourth quarter of 2011.

Anecdotal evidence suggested that Brexit-related uncertainty remained a key headwind to sales volumes, alongside a dent to business confidence from US-China trade frictions.

Survey respondents also noted a corresponding drop in business investment spending. A lack of new orders to replace completed projects also led to a sharp and accelerated drop in backlogs of work.

Reduced capacity pressure, and concerns about the near-term business outlook contributed to more cautious staff hiring policies in the third quarter, with unchanged employment across the tech sector, ending 10 years of workforce expansion.

With signs of greater pressure on margins, input cost inflation accelerated to its highest for one year, while average prices charged rose at a slower pace. Exchange rate depreciation against the US dollar was widely reported as a key factor pushing up business expenses.

Business expectations for the next 12 months remained subdued, which survey respondents linked in part to worries about the path to Brexit. Companies anticipating growth cited the roll-out of new products and technologies, alongside hopes of a rebound in export sales.

Bernard Brown, vice chair at KPMG UK, said: “Businesses are losing confidence and combined with activity expectations nearing lows last seen during the recession, it is easy to see why.

“Any positive growth forecasts cited for 2020 are often dependent on a clearer path to Brexit in the coming months, painting a pretty gloomy picture,” he continued, adding: “Worries over the outlook may seem well-founded as tech companies recorded the steepest drop in new orders in eight years alongside reports of cancelled or delayed spending on projects.”

Brown concluded with a note of hope though, stating that the sector has plenty of avenues from which to rediscover growth, scale up and attract new sources of business.

“Artificial intelligence and automation are two significant opportunities to drive profits – after all we must not forget the resilience of the tech sector, which continues to outperform other parts of the economy such as manufacturing, transport and hotels and restaurants.”