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

“The UK tech sector continued to expand in the final quarter of 2020, showing resilience in the face of pandemic disruptions and some client spending delays ahead of the Brexit transition deadline.

“Tech firms recorded fresh increases in sales and employment alongside rising output during the fourth quarter. This was in sharp contrast to the falls seen across other parts of the UK economy, particularly consumer-facing services. Tech companies often reported that clients had decided to press on with previously delayed projects as priorities pivot from real estate expenditure to spending on digital infrastructure, including e-commerce, software assets and business process improvements.

“Despite severe pandemic challenges in the near-term, the global economic outlook is starting to look much brighter thanks to the deployment of successful vaccines over the course of 2021. Business confidence across the tech sector has reached a four-and-a-half year high, with survey respondents forecasting a sustained rebound in demand amid recovering UK economic conditions and greater prioritisation of corporate spending on technology services and equipment.”

UK tech sector activity continues to expand in Q4 2020

The tech sector saw a further rise in business activity in the final quarter of 2020, according to KPMG’s quarterly survey of UK technology companies, compiled by IHS Markit, though the pace of expansion softened amid a wider slowdown across the UK economy.

At 51.6 in Q4, the KPMG UK Tech Monitor Index fell from 53.0 in Q3 but remained comfortably above the 50.0 no-change value. The latest reading marked a further recovery from the unprecedented drop in activity at the start of the coronavirus disease 2019 (COVID-19) pandemic. In the final three months of 2020, tech sector output expanded at a stronger rate than across the UK private sector as a whole (equivalent index at 50.5). 

KPMG UK Tech Monitor Index

Growth supported by stronger client demand and rising sales

Greater business activity at tech firms was supported by a fresh rise in new work in the fourth quarter. The respective index posted 51.7 in Q4, up from 49.1 in Q3, to highlight the fastest increase in new work since Q2 2019.

Companies linked the upturn to the recommencement of projects, robust demand for digital services and increased spending by clients in areas such as e-commerce.

However, ongoing disruptions related to the pandemic and, in some cases, uncertainty leading up to the Brexit deadline reportedly hampered overall sales growth.

Job creation at tech firms contrasts with private sector trend

Rising new order inflows and efforts to increase capacity encouraged tech companies to raise their staffing levels during Q4. At 51.6, the index measuring employment rose from 48.2 in Q3 and pointed to the first increase in workforce numbers since the start of the pandemic.

Furthermore, the rate of tech sector job creation was the steepest since Q2 2019 and contrasted with a further steep decline in employment across the UK as a whole (equivalent index at 44.3).

Sharp rise in operating costs

Tech companies highlighted the sharpest rise in input costs for two years. This reportedly stemmed from supplier price hikes, exchange rate movements and greater salary costs. However, efforts to attract and secure new work led to only a slight rise in selling prices, which suggested a further squeeze on tech sector margins. 

Business optimism strengthens further amid vaccine news

Latest data revealed a marked rise in business confidence across the tech sector regarding the year-ahead outlook. The index measuring growth expectations rose to its highest since Q2 2016, with tech companies also remaining more upbeat than the UK private sector overall.

Optimism was attributed to expectations that global economic conditions will recover in 2021 with the roll-out of vaccines and loosening of virus-related restrictions. Some firms also foresee opportunities for growth through new product releases and expansion into new overseas markets.

Download the full KPMG UK Tech Monitor report for further insights