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KPMG: Tech sector held back by slowing UK economy

KPMG: Tech sector held back by slowing UK economy

The UK tech sector marked seven years of continuous business activity expansion in Q2 2019, but there are now signs that subdued domestic economic conditions have started to hold back growth.

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Also on home.kpmg

  • Tech sector growth slows in Q2
  • New business softens as firms feel a chill from weaker UK economy
  • Staff hiring plans at tech companies are now the lowest for two years, while outperforming other sectors

The UK tech sector marked seven years of continuous business activity expansion in Q2 2019, but there are now signs that subdued domestic economic conditions have started to hold back growth. 

The KPMG UK Tech Monitor Index, which measures the strength of business activity across the sector, dropped from 54.4 in Q1 to 53.0 in Q2, to signal a softer rate of growth than at the start of 2019. Also, although the index has remained above the 50.0 ‘no change’ value since the third quarter of 2012, the latest reading signposted the second-weakest rate of UK tech sector growth for three-and-a-half years. Many survey respondents said that alongside the effect of subdued UK economic conditions on business activity growth, Brexit uncertainty had led to greater risk aversion, cuts to corporate spending and a corresponding slowdown in new business growth.

Q2 also saw a moderate sales volume increase at tech companies, contrasting with the decline reported by other areas of the UK economy. Tech firms often cited a strong pipeline of new product innovation and entry into overseas markets as their leads for new work. 

However, the latest rise in total new orders received by tech firms was among the weakest recorded since 2015.  Sluggish demand from domestic customers was one of the reasons often cited by survey respondents, as political uncertainty encouraged some clients to postpone new projects.

Bernard Brown, vice chair at KPMG UK said:

“Innovative tech software, services, manufacturing and equipment is at the heart of any business wanting to succeed in today’s market. So it is heartening to still see sales volume up and growth in the sector despite it beginning to feel the effects of political and economic uncertainty.” 

Latest data also revealed a clear slowdown in the pace of UK tech sector employment growth compared to the same time in 2018, with some firms apportioning slower hiring down to difficulties in finding suitably skilled candidates. The rate of job creation in tech did still exceed the UK economy as a whole but the findings point to the weakest staff hiring plans in the sector for two years.

Additionally, tech firms indicated that confidence has since picked up only fractionally from the 10-year low seen in Q1. Worries about global economic prospects, US-China trade tensions, and the unclear path to Brexit were the most commonly reported threats to the business outlook. 

Bernard Brown comments further:

“The slowdown in both sector growth and employment growth during the second quarter of 2019 is perhaps unsurprising given the slide in business optimism reported at the start of this year and the challenging global economic landscape. 

“Delays to business investment decisions and greater risk aversion among large corporates are likely to hold back UK tech sector performance during the second half of 2019, but exporting firms could feel a boost to sales from looser central bank policy in the US and euro area. While it is tempting to sit tight, businesses must act with an entrepreneurial and resilient spirit before we’ll see a significant, positive change in market confidence, furthermore reflected in the job market.”

 

ENDS

 

For more information please contact:

 

KPMG

Jennifer Ogunleye - TMT & Transport PR Manager

T: +44 (0)207 311 8637

M: +44 (0)734188 7015

jennifer.ogunleye@kpmg.co.uk

 

IHS Markit 

Joanna Vickers - Corporate Communications

T: +44 (0)207 260 2234

joanna.vickers@ihsmarkit.com 

Notes to editors

UK Tech Sector Purchasing Managers Index® (PMI®) data

UK Tech Monitor Index data is derived from a representative sub-category of approximately 150 tech companies within IHS Markit’s regular PMI® surveys of UK manufacturers and service providers. Tech is defined in this report as technology software, technology services and manufacturing of technology equipment. All figures are seasonally adjusted and smoothed using a three-month moving average, to better highlight underlying trends in the data.

UK Tech Sector Business Outlook data

Business activity expectations data are drawn from the monthly PMI® surveys question on companies’ expectations for their activity/output over the next 12 months. Prior to July 2012, only service sector companies were asked this question. Employment, capex, profits and input cost expectations data are based on responses from UK services and manufacturing firms participating in IHS Markit’s tri-annual Global Business Outlook survey, which is based on the same panel of companies as the PMI® surveys.

Technology sector industry groups

Software publishing (SIC 582), Computer programming, consultancy and related activities (SIC 620), Data processing, hosting and related activities; web portals (SIC 631), manufacture of computer, electronic and optical products (SIC 26), manufacture of electrical equipment (SIC 27).

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 16,300 partners and staff. The UK firm recorded a revenue of £2.338 billion in the year ended 30 September 2018. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 154 countries and has 200,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. 

About IHS Markit

IHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

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