The UK tech sector enjoyed a quarter of robust growth from April to June 2014 with the expansion of business activity rising at its fastest pace since the onset of the financial crisis, in 2007.
The latest KPMG/Markit Tech Monitor UK survey also indicates that improving UK economic conditions have ushered in a sustained period of strong top line growth for tech companies, which in turn boosted investment spending plans across the sector.Almost two-thirds (61 percent) report a solid upturn in year-ahead expectations for business activity and more than 4 in 10 (43 percent) also declare an intention to hire more staff.
It is also clear from the study that capital expenditure plans within the tech sector are at their most upbeat since data was first collated in 2009. Today, 43% anticipate an increase – compared to the previous high of 37.5 percent.
Commenting on the latest Tech Monitor UK results, Tudor Aw, Head of Technology at KPMG, says: “The UK tech sector is firing on all cylinders with sustained growth outstripping the wider economy. Importantly, this good news story looks like it will continue in the year ahead with many tech companies planning to loosen the purse strings to hire staff and raise capital expenditure. For the first time since 2007, there is also a welcome upturn in Tech IPOs which hopefully signals the beginning of a comeback of Tech companies to the London Stock Exchange, something that will be important in convincing tech start-ups that the UK is the right place to be.”
Current economic health
Looking at employment prospects in more detail, the latest Tech Monitor UK data signals further expansion of tech employment in the second quarter of 2014, with a ‘score’ of 52.2 on the Index (anything above 50 signifies growth). However, it fell from 55.7 in Q1, suggesting that the pace of job creation has slowed from the steep rates seen throughout much of the past four years.
Tech sector profitability also continued to increase in the second quarter of 2014 (with an Index ‘score’ of 54.7 in Q2). Survey respondents suggested that the latest improvement in profitability was supported by greater new work intakes, higher average selling prices and relatively subdued input cost inflation.
Looking ahead, tech companies seem to have a positive outlook about business prospects for the coming year (+54.7 percent net balance). Their sentiment is also stronger than the average recorded across all UK industry sectors (+51.7 percent net balance).Tech firms also report strong hiring intentions for the upcoming 12 months, despite the slow-down recorded during Q2. Latest data signals that 43.1 percent of UK tech companies plan to expand their payroll numbers, while just 5.9 percent expect to shed staff.
Tudor Aw adds: “Our data also shows UK tech business activity closely matches the movement in the NASDAQ, suggesting that the perceived six to 12 month lag of UK tech behind the US may be an urban myth. A potential blip on the horizon however, relates to the 6 point fall in the backlog of work. It is too early to tell if this is due to efficiencies and increased hiring or something more worrying, but it will certainly need to be monitored in the coming months.”
Tim Moore, Senior Economist at Markit, comments: “The latest survey provides a resoundingly bullish snapshot of UK tech sector performance in 2014 so far, with companies in the midst of their strongest overall growth phase for at least seven years.Not only is the tech sector enjoying a longer and steeper growth upswing than the wider UK economy, but a broad spectrum of tech companies continue to report confidence in terms of job hiring and investment spending for the next 12 months.
“A thriving domestic tech sector has been supported by more favourable conditions across the UK economy, providing a positive backdrop for innovative companies looking to enter new markets and tap stronger spending patterns among businesses and consumers. Moreover, with many businesses now looking to respond quickly to the rising economic tide, UK tech companies should be well poised to grease the wheels of growth by offering innovative solutions and boost efficiency across a range of sectors.
“On the job hiring front, the latest figures suggest tech companies have taken a slight breather after several years of breakneck growth, contrasting with the scramble to boost employment in other areas of the economy, such as house building, that have seen prolonged cuts to capacity prior to the recent rebound. However, the moderation in tech hiring in the second quarter of 2014 looks unlikely to become entrenched given the strong staff hiring intentions and spending forecasts reported by tech companies in the latest survey.”
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Note to editors:
Tech Monitor UK is a regular quarterly report by KPMG, featuring unique survey data from a panel of tech sector executives within Markit’s widely-watched UK Purchasing Managers’ Index® (PMI®) surveys, providing a reliable and up-to-date assessment of tech sector growth.
UK Tech Sector Purchasing Managers’ Index® (PMI®) survey data
UK tech sector PMI data is derived from a representative sub-category of approximately 150 tech companies within Markit’s regular PMI® surveys of UK manufacturers and service providers. Tech is defined in this report as technology software, technology services and manufacturing of technology equipment. All figures are seasonally adjusted and smoothed using a three-month moving average, to better highlight underlying trends in the data.
UK Tech Sector Business Outlook Survey data
Business activity expectations data are drawn from the monthly PMI® surveys question on companies’ expectations for their activity/output over the next 12 months. Prior to July 2012, only service sector companies were asked this question.
Employment expectations data are based on responses from UK services and manufacturing firms participating in Markit’s tri-annual Global Business Outlook survey, which is based on the same panel of companies as the PMI ® surveys.
‘Technology Sector’ industry groups:
For more methodology details, see the October 2013 Tech Monitor UK report (PDF 3.24 MB)
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.