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Tech sector gears up for growth as job creation nears two-year peak

Output growth projections strongest for nearly seven years

Output growth projections strongest for nearly seven years

Key findings

  • Output growth projections strongest for nearly seven years
  • UK tech companies hire staff at fastest pace since Q2 2019
  • Shortages of electronic components and higher shipping costs lead to sharp rise in input prices

Tech companies are more optimistic about near-term growth than any time since the second quarter of 2014, according to KPMG’s quarterly index of UK tech sector performance. Survey respondents reported strong confidence that business activity will rebound swiftly after the growth headwinds of the national lockdown and Brexit-related uncertainty among clients at the beginning of 2021 begin to ease. As a result, tech sector firms added to their payroll numbers in Q1, with the pace of staff hiring the quickest for nearly two years. 

Bina Mehta, Chair, KPMG in the UK, said:

“The pandemic has placed a huge focus on the importance of technology in our daily lives.  The move towards new remote and hybrid working arrangements, new spending priorities for businesses around IT infrastructure, automation and the huge shift to online retail, are likely to provide a long-term boost to sales and investment in the tech sector. Tailwinds from new trade arrangements, favourable global demand and the reopening of the UK economy will both help our vital tech sector to gain speed in the second quarter of 2021.

“With the UK now in phase two of the Government’s roadmap to recovery and businesses starting to adjust to regulatory changes and supply chain issues post Brexit, the tech sector is fast-tracking plans to get back to growth. The sector is a vital economic contributor and driver of employment in the UK and will play a key role to drive the country’s post-pandemic recovery.

“An acceleration in jobs growth to its fastest for almost two years provides a clear signal that tech companies are confident about future workloads and expect to receive a boost from improving UK economic prospects. The successful vaccine rollout and optimism around corporate technology investment were key factors helping to drive up business confidence to a seven-year high in the first quarter of the year.”

Job creation heats up as UK tech sector outlook improves in Q1

Survey data from the KPMG UK Tech Monitor Index highlighted that the technology sector remained in expansion mode during Q1 2021, despite a jolt to activity at the start of the national lockdown in January.

Output soon picked up in February and March, leaving the tech sector recovery on a healthy trajectory by the end of the first quarter.

Resilient demand conditions also led to the fastest rise in employment since Q2 2019 and the strongest output growth projections for nearly seven years.

The index measuring UK tech employment rose from 51.5 in Q4 2020 to 51.8 in Q1, which indicated the strongest rate of job creation since Q2 2019. Sustained efforts to boost staffing numbers contrasted with another slight drop in UK private sector employment in Q1.

Confidence highest since Q2 2014

A key factor driving employment growth across the tech sector was stronger optimism towards the 12-month business outlook. At 77.3 in Q1, the index measuring growth expectations rose from 74.7 in Q4 and hit its highest level since Q2 2014. Optimism was stronger than in all other parts of the UK private sector, except for hotels and restaurants – many of which have not been trading for 9 of the last 12 months.

Upbeat forecasts were frequently linked to vaccine progress and the prospect of rapid economic growth once restrictions are eased. There were also mentions of previously delayed product launches and greater investment in areas such as cloud technology, e-commerce platforms and AI software. 

Business activity falls modestly

At 48.3 in Q1, the headline Business Activity Index dropped from 51.5 in Q4 2020 and signalled an overall loss of recovery momentum since the end of last year.

The third national lockdown, combined with Brexit disruption, drove a substantial drop in business activity during January. Although growth emerged in February and March, the initial decline weighed heavily on the index reading for Q1.

Business activity also fell across the UK private sector as a whole during the opening quarter, largely reflecting a slump in consumer services. However, the economic downturn was much softer than seen at the start of the COVID-19 pandemic.

Slight drop in new orders

Stricter government stringency measures and subsequent disruption to clients’ business operations drove a slight reduction in new order intakes at tech firms during Q1.

Some survey respondents mentioned that export sales to European clients were adversely impacted by uncertainly after the end of the Brexit transition period. Encouragingly, monthly data showed that total new orders returned to growth in March as the vaccine rollout and roadmap for reopening the economy helped to boost demand.

Inflationary pressures pick up

Rising costs for staff, transportation and electronic components led to the sharpest increase in tech sector input prices for nearly four years in Q1.

Technology firms sought to alleviate the squeeze on margins from higher costs, with prices charged raised at the fastest pace since Q2 2019.

ENDS

 

For more information please contact:

KPMG UK

Emma Murray

Media Relations Manager

+44 (0)20 7694 6506 or +44 (0)7956 629 361

emma.murray@kpmg.co.uk

IHS Markit

Joanna Vickers

Corporate Communications

T: +44 207 260 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.

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 21 offices across the UK with approximately 17,600 partners and staff.  The UK firm recorded a revenue of £2.40 billion in the year ended 30 September 2019.

KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. It operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

 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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