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Bernard Brown, Vice Chair at KPMG in the UK comments on the Tech Monitor as below:

“The UK tech sector saw a solid rebound in business activity during the third quarter of 2020 as more clients reopened and opted to restart previously delayed projects. This followed a sharp downturn in spending during the spring, which meant that many tech businesses were far from immune to the slump in the UK economy.

However, customer demand was still relatively subdued in the third quarter, largely reflecting a cautious approach to budget setting among corporate clients amid lingering uncertainty around the trajectory of the COVID-19 pandemic and likelihood of further disruption to business operations in the months ahead.

On a brighter note, employment across the tech sector has been resilient in the context of wider labour market conditions and the sector will be an important driver of jobs growth as the UK economy recovers its lost ground. The latest survey data indicated rising business optimism at UK tech firms. The level of confidence towards the year ahead was up notably since the second quarter as companies cited improving global economic conditions and a sustainable recovery in demand for tech products and services.

As more businesses embrace the digitisation of operations, expand product offerings and explore new ways to engage with clients, the UK tech sector will serve as a vital enabler for all types of enterprises as they seek to evolve and adapt to the post-pandemic world.”

New orders close to stabilising and business optimism rebounds in Q3

The tech sector’s performance bounced back in the third quarter of 2020, according to the latest KPMG UK Tech Monitor Index. The quarterly survey of UK technology companies showed that business activity has started to recover from a record drop, which was caused by the COVID-19 outbreak and subsequent lockdown of the economy in Q2.

At 53.3, the headline Index posted above the neutral 50.0 level, which is a significant increase from the 31.8 result in Q2. The latest reading signalled the fastest increase in output at UK tech firms since Q1 2019.

During the early stages of the COVID-19 pandemic, business closures among clients, project cancellations and lower overall corporate spending proved more critical than the surge in consumer demand for digital services during the lockdown period. Now, the tech sector output has returned to a solid growth path in Q3 2020, as more parts of the UK economy reopened and clients resumed projects that had previously been delayed due to the pandemic.

Encouragingly, growth momentum across the tech sector accelerated in each month of the third quarter, and the rebound has taken hold in the absence of direct stimulus measures for the sector. 

Staff hiring close to stabilisation despite the subdued new orders

Although activity across the tech sector increased as market conditions began to normalise in the third quarter, the latest data pointed to subdued intakes of new work.

The Index measuring new business rose from a record low of 29.7 in Q2 to 48.2 in Q3. The demand is still relatively low, despite being an improvement from the situation we saw earlier in the pandemic.

A number of tech firms mentioned that corporate spending was pared back again in Q3 due to the highly uncertain global economic outlook, which resulted in subsequent efforts to contain costs. Despite these budget cutbacks among clients, staff hiring trends across the UK tech sector have been far more resilient than across the wider economy so far this year. The latest survey indicated that employment numbers among tech companies moved closer to stabilisation, which contrasted with another steep round of UK private sector job cuts in the third quarter.

Recovery in business is optimistic among tech companies

The latest Index found that UK tech firms are optimistic overall about their prospects for growth in the next 23 months, reflecting hopes of a sustainable recovery in client demand. At a score of 69.7 in Q3, the business expectations Index was up sharply from 58.5 in Q2 and is above what has been seen in the rest of the service sector. 

Download the full KPMG UK Tech Monitor report for further insights