Tech firms signal steepest decline in business activity since 2009.
The UK’s tech sector suffered its worst performance since the global financial crisis in the opening quarter of 2020, according to KPMG’s quarterly survey of UK technology companies, as the COVID-19 pandemic led to a swift decline in non-essential spending and escalating uncertainty about the economic outlook.
Steepest fall in UK tech sector output since global financial crisis
Business activity across the tech sector declined for the first time in almost eight years, according to the latest KPMG UK Tech Monitor Index.
At 47.1 in Q1 2020, down from 50.1 in Q4, the headline index was well below the crucial 50.0 no-change mark and signalled the fastest decline in business activity since Q2 2009.
Survey respondents overwhelmingly attributed the downturn in business activity to the impact of the COVID-19 pandemic at the end of the first quarter.
In particular, tech firms noted that the public health emergency led to a rapid fall in non-essential corporate spending, cancelled projects and widespread closures among clients.
Uplift from business continuity spending helps some tech firms
Despite the marked fall in overall business activity, some areas of the tech sector continued to report growth during Q1 2020. These companies often commented on rising demand for services related to home working and business continuity.
Slump in UK economy in March
Looking at the single-month of March, the software services sub-category bucked the overall tech sector trend by registering a slight upturn in business activity (index at 50.8).
In contrast, equivalent data compiled by IHS Markit in March signalled the fastest drop in UK private sector output for more than 20 years (index at 36.0).
Supply chain shock hits manufacturers of tech equipment
The latest data revealed a broad-based slump in production of technology goods during the first quarter partly reflecting a severe shock for international supply chains amid plant closures in Asia related to the COVID-19 pandemic.
UK manufacturers of technology goods widely noted difficulties fulfilling orders following shortages of electronics components and delayed shipments of critical inputs from suppliers.
Tech jobs rebound continues, but business confidence ebbs
Employment numbers picked up in each month of the first quarter, with the overall pace of jobs growth reaching its strongest since Q2 2019. Higher staffing numbers were mostly attributed to an immediate need to fill vacancies and deliver existing projects.
Tech companies also remain much more upbeat about the business outlook than other areas of the UK economy. However, weaker order books and escalating concerns about the impact of the pandemic on client spending have hit growth projections across the sector. As a result, business confidence fell sharply from its peak in Q4 2019.
Bernard Brown, vice chair at KPMG UK said:
“The tech sector was not alone in reporting a severe impact on business activity from the COVID-19 pandemic in the first quarter of 2020 which has inevitably resulted in cutbacks to spending and investment.
““With UK tech companies adding to their payrolls at the start of 2020, a recovery in staff hiring was the most positive development highlighted by them so far this year. Although tech business confidence fell in recent months, confidence remains stronger than most sectors of the UK economy, helped by pockets of growth within software & services amongst growing consumer demand for relevant digital solutions to cope in ‘the new normal’.
“Many tech firms anticipate a bounce in demand once measures to slow the spread of the virus can be lifted, but the uncertain duration appears to weigh heavily on optimism about growth prospects in 2020.
“It is clear that as tech companies continue to innovate and grow, their provision of critical technology infrastructure and support for businesses continuity will see many opportunities for the industry to make lasting contributions to the UK economy in these difficult times.”
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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 2).
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