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Tech sector growth in UK weakest for three years

Staff Writer |
Political uncertainty and global trade frictions have dented client confidence, but buoyant staff hiring and capital spending plans are still in place for 2019, according to a new quarterly survey of UK technology sector companies by KPMG.

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The tech sector experienced a difficult end to 2018, as business activity growth eased to its weakest for three years and new work remained subdued.

Global trade frictions and Brexit-related uncertainty were widely reported to have acted as a headwind to client spending.

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, 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.

Operating expenses continued to rise sharply at tech firms, albeit at a weaker pace than the record highs seen in 2017.

Difficulties filling vacancies pushed up staff costs, while exchange rate depreciation fuelled input cost pressures for dollar denominated purchases.

Looking ahead to 2019, there are positive signs in the latest report.

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.

Tech businesses appear set to remain a strong engine of job creation.

Almost half of the survey panel expect to boost workforce numbers, while less than one-inten forecast a fall.

Tech sector employment plans are far stronger than that reported by the UK private sector as a whole, which are now the lowest since Q1 2013.

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