UK tech sector growth hits three year low, says KPMG

Brexit and US-China trade war blamed for loss of momentum in Q4 2018

While the UK tech industry is withstanding the worst effects of an adverse economic climate, escalating political uncertainty and global trade frictions are beginning to bite the buoyant sector, according to KPMG.

In Q4 2018 the UK tech industry scored 52.4 on KPMG’s UK Tech Monitor Index, which measures the strength of business activity in the sector. Although continuing the upward trajectory signalled since summer 2012, the reading was down from 54.0 in Q3 and represents the slowest rate of business expansion in three years.

Brexit and global trade frictions have dented client confidence and acted as a headwind to spending, and companies are also experiencing the sharpest fall in work backlogs for seven years, suggesting the slump could exacerbate further if new work is not found to replace projects completed at the end of 2018. 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.

Outlook remains upbeat

Despite these difficulties, there are still plenty of positive signs for the UK tech industry and most tech firms remain upbeat about their capital spending plans. Considerable R&D spending over the past three years means there will be a high volume of new product launches in 2019, and others report a competitive boost from the weak pound will improve exports.

Tech businesses also appear set to remain a strong engine of job creation. Almost half of companies surveyed expect to boost workforce numbers, while less than one-in-ten forecast a fall. Tech sector employment plans are also far stronger than that reported by the UK private sector as a whole – which are now the lowest since Q1 2013.

Bernard Brown, vice chair at KPMG said the findings demonstrate the ‘strength and resilience of the UK tech sector in the new digital economy’.

“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,” he said.

“This confidence is reflected in the statistic that almost 50 percent of UK tech firms intend to add jobs over the next year, whilst many traditional manufacturers are considering moving jobs offshore.”