Uncertainty causing IT firms ‘loss of momentum’

The ‘wait and see approach’ that contractors’ clients were said to have adopted at the close of 2018 has been confirmed in a new report on the technology sector.

Compiled by KPMG, the report reveals that new work at IT firms expanded at its weakest pace for two years, and that backlogs of old work suffered their sharpest fall for seven years.

When combined, the reductions help explain why despite positive outlooks for 2019, tech companies’ business activity growth slackened to a three-year low at the close of last year.  

'Uncertainty'

The companies blamed global trade frictions, and "uncertainty" -- both politically in the UK, and further afield due to Brexit still being unresolved, for subduing their clients’ spending.

These factors triggered the ‘wait and see’ approach to New Business (the NB index stands at 51.8, versus 52.1 in Q4), alongside an uncertain economic outlook, globally.

Another index in the report also using 50.0 as the growth threshold, and which tracks (uncompleted) work-in-hand at IT firms, shows a drop from 48.9 in Q3 to 45.9 in Q4 2018.

'Productivity improvements'

Respondents in the report, Tech Monitor, which polls a subsample of 150 services, software and hardware firms, said softer demand-growth led to less pressure on business capacity.

A more positive explanation given by “some” IT firms spoke of “productivity improvements” allowing them to achieve a sustained fall in unfinished work. Others reported similar boosts.

“While UK tech companies note that uncertainty in relation to Brexit is holding back or delaying some business investment plans, they also widely reported that new product development and competitive pressures are acting as a tailwind to their capital spending plans.”

'Dented confidence'

The report adds: “Tech firms report that projections for demand growth have softened [but], they remain highly upbeat about their capital expenditure plans.

“A strong record of R&D spending continues to drive confidence regarding new product launches, according to survey respondents. Some suggest that a competitive boost from the weak pound will help achieve new sales in export markets.”

However, in line with alerts from both staffing body the REC, and niche recruiter Bowers Partnership, KPMG’s Bernard Brown said that the UK’s political uncertainty had “dented” tech firms’ confidence at the end of last year, causing them “a loss of momentum.”