Weakest UK tech sector growth for nearly four years.
Business confidence, growth and sales volumes in decline according to KPMG’s quarterly survey measuring the strength of business activity across UK technology sector companies.
UK tech sector growth slows as firms hit by fall in new work.
The latest survey reveals a downturn in new work across the tech sector for the first time since the middle of 2012, due to softer global economic conditions and ongoing domestic political uncertainty. Subdued business and consumer spending meant that UK tech companies experienced another slowdown in business activity growth during the third quarter of 2019. The loss of momentum was widely attributed to delayed decision-making among clients.
The Q3 KPMG UK Tech Monitor Index registered 51.9 in the third quarter of 2019, down from 52.9 in Q2. While the Index remains higher than the crucial 50.0 value that separates expansion from contraction, the latest reading signalled the slowest rate of UK tech sector growth since Q4 2015.
While tech firms are finding growth more difficult to achieve, their performance remains stronger than elsewhere in the flatlining UK private sector (equivalent index posting 50.1 in Q3).
Global economic slowdown and Brexit worries hold back demand
The data revealed a drop in new orders received by UK tech sector companies at the steepest rate of decline since Q4 2011.
Anecdotal evidence suggested that Brexit-related uncertainty remained a key headwind to sales volumes, alongside a dent to business confidence from US-China trade frictions. Survey respondents also noted a corresponding drop in business investment spending.
A lack of new orders to replace completed projects also led to a sharp and accelerated drop in backlogs of work.
Staff hiring plateaus following 10 year growth
Reduced capacity pressure, and concerns about the near-term business outlook contributed to more cautious staff hiring policies in Q3, with unchanged employment across the tech sector, ending 10 years of workforce expansion.
Weaker pound pushes up costs
With signs of greater pressure on margins in Q3, input cost inflation accelerated to its highest for one year, while average prices charged rose at a slower pace. Exchange rate depreciation against the US dollar was widely reported as a key factor pushing up business expenses.
Business outlook remains weak
Business expectations for the next 12 months remained subdued in the third quarter of 2019, which survey respondents linked in part to worries about the path to Brexit.
Companies anticipating growth cited the roll-out of new products and technologies, alongside hopes of a rebound in export sales.
Bernard Brown, vice chair at KPMG UK said:
“The latest reading shows that continued uncertainty in the UK amidst signs of weaker global economic growth is weighing on the performance of UK tech firms. Businesses are losing confidence and combined with activity expectations nearing lows last seen during the recession, it is easy to see why. Any positive growth forecasts cited for 2020 are often dependent on a clearer path to Brexit in the coming months, painting a pretty gloomy picture.
“Worries over the outlook may seem well-founded as tech companies recorded the steepest drop in new orders in eight years alongside reports of cancelled or delayed spending on projects.”
“But there is hope. The sector has plenty of avenues from which to rediscover growth, scale up, and attract new sources of business. AI and automation are two significant opportunities to drive profits. After all we must not forget the resilience of the tech sector, which continues to outperform other parts of the economy such as manufacturing, transport and hotels & restaurants.
“Of course the sector has been here before. In 2012 it rebounded following a similarly sharp contraction. However, with potentially volatile repercussions, it will be interesting to see how this will play out in the coming months.”
For more information please contact:
TMT & Transport PR Manager
+44 (0) 20 7311 8637; +44 (0) 73 4188 7015
T: +1 (781) 301-9311
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.
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).
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.
IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2019 IHS Markit Ltd. All rights reserved.
The intellectual property rights to these data are owned by or licensed to IHS Markit and/or its affiliates. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit’s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. IHS Markit is a registered trademark of IHS Markit Ltd and/or its affiliates.
© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.