The value of cloud services contracts in Europe fell for the second time year-on-year and saw its largest quarterly decline ever, according to new research.

Figures from technology research firm ISG found that the annual contract value (AVC) of cloud services fell by six per cent to $3.7 billion over the past quarter.

Within cloud services, infrastructure as a service (IaaS) saw a 10 per cent decline to $2.7 billion while firms spent around $1 billion on software as a service (SaaS).

In terms of regions, the UK spent the most on IT outsourcing contracts, with organisations spending around $1.2 billon in the first quarter. This was a decline of two percent compared to the same period last year and a fall of 36 per cent on the last quarter of 2022.

Spending in the DACH region also fell to $730 million, a decline of 21 per cent compared to the same time period last year.

ISG has lowered its forecast for cloud service spending in revenue growth in 2023, with the company expecting the fall in cloud contracts is to last throughout the second quarter, with demand picking up again in the second half.

“The macro environment remains uncertain, with interest rates, inflation and trouble in the banking sector topping concerns for enterprise clients,” said Steve Hall, ISG president EMEA. “There continues to be more scrutiny on deal signings, especially in discretionary spending areas. Enterprises are revisiting cost optimisation, efficiency gains and vendor consolidation deals.”

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