Contractor UK Market Report - Rates limp lower

As the sun peaks out and the skies turn an encouragingly clear blue (at least at the time of writing), news for IT contractors is less promising. Following a dramatic rate slump to finish 2010, there has been no bounce back through the first quarter of 2011, as public sector cuts begin to bite and private sector caution stymies rate progress.

In this year’s first three months there was, in fact, a fractional drop in average rates across the ten most commonly requested skills, from £30.52 to £30.23. And given that this rate stood at a pre-credit crunch, 30-month high of £32.96 just six months ago, the continuing sluggishness of hourly pay suggests that there may not be much positivity for a while to come.

On pay alone, what little good news there is came at the higher end of the scale. Architects saw average rates go from £39.69 to £42.50, a 7% jump, while consultants went from £29.50 to £35, a healthy 19% upwards move. As always, these rates are taken from job adverts, but as more than 100,000 are analysed there is a certain consistency to the standards of the figures.

What they might suggest, is that firms are only spending when they really have to bring in specialised knowledge, and can’t muddle through in the way they might if they were short on first line desktop support.

But overall for Q1, news appears to be mostly disappointing. According to staff screening firm Powerchex, offers to IT contractors were down 80%, month-on-month in January, and 32% on this point last year. It’s part of a nationwide caution, believes the firm’s founder Alexandra Kelly.

"Many organisations appear to be delaying funding decisions to see what other companies are doing and make sure they are not over-committing themselves in non-core projects. This is not good news for IT contractors," she said at the time. 

Yet one area appears to be showing positive growth as, according to Steve Fox, managing director of the National Computing Centre,  “companies continue to invest in their core enterprise solutions” in order to maintain competitive edge in a tough market.

NCC figures show that 20% of companies have increased their spending on enterprise software and ERP tools. In the equivalent survey last year, just  6% had done so. If we take ERP as a catch-all phrase from our itjobswatch figures, day rates have moved healthily upwards over the last year, from £413 to £440. And there may be broader positive trends.

A recent KMPG and Recruitment Employment Confederation  report on hiring of technology staff found that demand for contractors, “saw strong growth” in March, and that “for temporary assignments, employers found it difficult to secure people with C++ training.” It’s something that has been noticeable in rates, with day prices for C++ going from around £525 to around £550 over the last couple of months.

In terms of sectors, there is some semi-positive long term news for spend in banking, according to Jacob Jegher, a senior analyst with Celent, a research specialist in IT-banking.

“We are not completely out of the woods, but the good news is that the turnaround has begun,” he says. “European institutions are still being hit particularly hard, and many of these challenges will continue in 2011. The good news is that overall growth projections are indicating a positive trend.”

And the faint whiffs of a resurgent financial sector are encouraging IT contractors, according to umbrella company Giant. Some 36.7% of IT contractors polled by the firm think the financial services sector will create the most IT work over the next 12 months, up from 22% this time last year.

Predictably, faith in public sector jobs has plummeted, with just 4.5% of contractors expecting the public sector to create the most IT jobs in 2011, down from 24.7% in Q4 2009.

Managing director Matthew Brown reckons that, “the banking sector in particular is growing at the fastest rate since before the financial crisis and those same team leaders who were told to let contractors go at the start of the recession are being instructed to start hiring again.

Across banking, “the sector is facing intense regulatory pressure to make transactions more transparent and improve risk monitoring, which is spurring a huge investment in IT.”

So, he added, “banks and fund managers are preparing their systems for the Basel III and the Alternative Investment Fund Managers Directive respectively while insurers are ramping up IT investment ahead of the implementation of Solvency II regulations.”

However such specialist skills will not sustain much of the IT contractor market. There are currently just 15 Basel III roles in our jobswatch sample of more than 100,000 jobs, and such a small pool leads to wild price spikes. In November the average day rate for this skill was a fraction under £400. In February it had reared to over £600, and now is closer to £550.

Specialists in rare but important IT skills will always have work. For everyone else on the contract market, caution still appears to prevail and that’s in spite of the tangible pick-up. Unveiling its latest Report on Jobs, based on the billings of 300 agents, the REC yesterday said that overall demand for temporary IT and Computing workers notched up its fifth month of real-terms growth in March 2011, with an index score of 65.0. That means that, whatever picture you might be receiving as an individual, the appetite for IT contractors is stronger now that any time since at least August 2004. Let’s hope clients and their HR managers remember that things for IT contractors are brightening up when they come to signing off spring-summer time pay rates.

Matt Farquharson

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