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UK Technology sector in Q2, 2019

KPMG UK Tech Monitor Q2, 2019

KPMG has teamed up with IHS Markit to bring you quarterly UK technology sector updates in the second KPMG UK Tech Monitor report. The index measures the strength of business activity across the sector.

How did UK tech companies perform during the first quarter of 2019?

Business optimism drops to 10-year low

Optimism in the UK technology sector dropped to a 10-year low in Q1, despite business activity growth recovering to its fastest pace since Q2 of last year with the index measuring sentiment dropping from 69.8 in Q4 last year to 65.6. Technology firms reported that Brexit-related uncertainty and a subdued global economy had the potential to dampen corporate spending, alongside concerns on the technology sector skills shortage threatening growth.

Tech sector activity gets a boost despite falling optimism on Brexit

The KPMG UK Tech Monitor Index rebounded to 54.4 in Q1, from 52.3 at the end of 2018 - the weakest pace of growth registered in three years. A reading above 50 shows an increase in overall business activity across the sector, whereas a reading below indicates a decline.

KPMG UK Tech Monitor Q1, 2019

UK Tech Monitor Q1, 2019 graph

KPMG UK Tech Monitor Index
Above 50 = growth, seasonally adjusted

The UK technology sector also outperformed the overall UK economy in Q1 2019. The sector attributed faster sales growth to resilient demand from the US and from diversification into new overseas markets. The new business index registered at 55.1 in Q1, up from 51.9 in the final quarter of last year.

Confidence about staff hiring and capital expenditure plans continued to outstrip the rest of the UK economy. Around 43% of tech firms expect to boost their workforces in the next 12 months, while only 11% anticipate a fall in employment.

Despite a slide in business confidence to its weakest for a decade, companies continue to report a range of long-term trends likely to support tech sector growth in 2019. These include advances in AI-enabled enterprise software, fintech innovation and strong demand for cloud technologies.

Bernard Brown, Vice-Chair at KPMG UK said:

“The latest Index ultimately outlines the resilience of the UK technology sector, and the strength of its ability to compete globally.

“It’s encouraging to see tech firms’ output and order books rebound from the low levels of growth seen at the end of 2018, as corporate demand for technology services and a healthy pipeline of new product launches supported sector growth in Q1.

“While business may be concerned about global economic headwinds threatening customer spending, confidence is being buoyed by long term trends where we have a track-record for innovation.

“Advances in AI-enabled enterprise software, innovation in fintech and a strong demand for cloud technologies are all excellent opportunities for the sector to grow in the year ahead.”

Download the full KPMG UK Tech Monitor report for more insights.