UK tech sector sees steepest decline in business activity since 2009

In the opening quarter of 2020, the UK’s tech sector suffered its worst performance since 2009’s global financial crisis, according to KPMG’s quarterly survey of UK technology companies.

The report shows that the COVID-19 pandemic has led to a swift decline in non-essential spending. Business activity across the tech sector declined for the first time in almost eight years, according to the KPMG UK Tech Monitor Index.

At 47.1 in Q1 2020, down from 50.1 in Q4, the headline index was well below the crucial 50.0 no-change mark. Survey respondents overwhelmingly attributed the downturn in business activity to the impact of the COVID-19 pandemic at the end of the first quarter. In particular, tech firms noted that the public health emergency led to a rapid fall in non-essential corporate spending, cancelled projects and widespread closures among clients.

However, despite the marked fall in overall business activity, some areas of the tech sector continued to report growth during Q1 2020. These companies often commented on rising demand for services related to home working and business continuity. Looking at the single-month of March, the software services sub-category bucked the overall tech sector trend by registering a slight upturn in business activity (index at 50.8).

In contrast, equivalent data compiled by IHS Markit in March signalled the fastest drop in UK private sector output for more than 20 years (index at 36.0).

KPMG’s data revealed a broad-based slump in production of technology goods during the first quarter partly reflecting a severe shock for international supply chains amid plant closures in Asia related to the COVID-19 pandemic. UK manufacturers of technology goods widely noted difficulties fulfilling orders following shortages of electronics components and delayed shipments of critical inputs from suppliers.

“The tech sector was not alone in reporting a severe impact on business activity from the COVID-19 pandemic in the first quarter of 2020 which has inevitably resulted in cutbacks to spending and investment,” commented Bernard Brown, vice chair at KPMG UK.

“With UK tech companies adding to their payrolls at the start of 2020, a recovery in staff hiring was the most positive development highlighted by them so far this year. Although tech business confidence fell in recent months, confidence remains stronger than most sectors of the UK economy, helped by pockets of growth within software & services amongst growing consumer demand for relevant digital solutions to cope in ‘the new normal’.

“Many tech firms anticipate a bounce in demand once measures to slow the spread of the virus can be lifted, but the uncertain duration appears to weigh heavily on optimism about growth prospects in 2020. It is clear that as tech companies continue to innovate and grow, their provision of critical technology infrastructure and support for businesses continuity will see many opportunities for the industry to make lasting contributions to the UK economy in these difficult times.”

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