UK tech sector sees weakest performance since 2012

The UK tech sector  has seen its weakest performance since Q2 2012, according to KPMG’s quarterly survey.

Measuring the strength of business activity across UK technology sector companies, KPMG found that the sector’s performance  was “in limbo”, with staff hiring declining and new business activity flat-lining.

UK tech companies reported that overall business activity was unchanged from Q3, which marked the worst performance for the sector since the current phase of expansion began seven-and-a-half years ago.

Survey respondents continued to report an intense headwind from domestic political uncertainty and subdued global trade conditions. A number of tech firms also noted that clients had delayed major spending decisions in the run up to the general election in December, resulting in a sharp loss of momentum throughout the second half of last year.

The KPMG UK Tech Monitor Index read 50.1 in Q4, down from 52.0 in Q3. The index was close to the neutral 50.0 threshold that separates expansion from contraction and the lowest reading since Q2 2012.

Political uncertainty also contributed to a drop in staffing levels across the tech sector in the final quarter of 2019, as companies delayed hiring and became more risk averse. Some tech firms cited difficulties recruiting suitably skilled staff in an already tight labour market, which had limited their ability to fill vacancies. Although only modest overall, the fall in payroll numbers was the steepest recorded since Q2 2009.

On a more positive note, tech companies reported upbeat business expectations for 2020, reflecting hopes of greater clarity in relation to Brexit and receding US-China trade frictions.

The degree of optimism regarding business activity in the coming 12 months is the highest recorded by the survey since Q3 2018. Tech companies often commented on opportunities from 5G rollout, new product innovation and expansion into overseas markets.

Although higher salary payments and the weak pound continued to push up operating costs, the overall rate of cost inflation in Q4 2019 eased to its weakest since Q2 2016, which helped to limit pressure on margins and potentially contributed to the optimistic outlook.

Some firms also cited hopes of a rebound in global supply chains that were hit by trade tariffs on technology products in 2019.

“Although our latest findings show that the UK tech sector is starting the new decade on the back foot, there are some encouraging signals for tech sector prospects in 2020,” commented Bernard Brown, vice chair at KPMG UK.

“With the general election and ‘Brexit day’ officially out of the way, it would seem that recent political and economic uncertainty is now paving the way towards more optimism, reflected in the sharp rebound in business confidence towards the year ahead outlook. Additionally, US-China trade frictions may start to exert less of an impact on business investment decisions.

“Finally, investment and innovation in areas related to 5G technologies, automation and AI, will no doubt spur on product launches and create new markets for UK tech businesses that have the potential for global impact and reach.”

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