UK tech sector sees weakest growth for three years thanks to “global trade frictions”

The UK tech sector experienced a difficult end to 2018, as business activity growth eased to its weakest for three years, according to the latest report from KPMG.

The report points to “global trade frictions” and “Brexit-related uncertainty” as reasons for client spending slowing down.

At 52.4 in Q4, the KPMG UK Tech Monitor Index – which measures the strength of business activity across the sector – remained above the crucial 50.0 no-change value, which continued the upward trend signalled since the summer of 2012.

However, KPMG reported that the latest reading was down from 54.0 in Q3 and pointed to the slowest rate of tech sector business expansion since Q4 2015.

Tech companies also signalled the sharpest fall in backlogs of work for seven years, suggesting a lack of new work to replace completed projects at the end of 2018.

Some tech companies have responded to subdued business investment across the wider economy by putting the brakes on staff hiring at the end of last year.

While employment numbers continued to rise overall in Q4, the rate of growth continued to soften from a survey-record high seen at the start of 2018.

KPMG revealed that higher wages had driven up costs in Q4. Difficulties filling vacancies pushed up staff costs, while exchange rate depreciation fuelled input cost pressures for dollar denominated purchases.

Looking ahead to 2019, the report does show some positive signs. While tech firms report that projections for demand growth have softened, 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 export sales.

“Our survey reveals that political uncertainty has dented client confidence contributing to a slowdown in growth at the end of last year. But, buoyant staff hiring and capital expenditure plans are still in place for 2019,” said Bernard Brown, vice chair at KPMG UK.

“This confidence is reflected in the statistic that almost 50% of UK tech firms intend to add jobs over the next year, whilst many traditional manufacturers are considering moving jobs offshore. This demonstrates the strength and resilience of the UK tech sector in the new digital economy.”

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