Tech sector in UK shows strongest growth for a decade

31 January 2014

The UK tech sector increased its growth during the fourth quarter of 2013, with strong inflows of new work driving the steepest expansion of business activity for almost a decade, according to the latest KPMG/Markit Tech Monitor UK report.

As a result, the sector ended the year on a much firmer growth footing than it started, with a cyclical upswing first emerging in the spring of 2013 and picking up sharply since the autumn.

In December, the index measuring UK tech sector business activity posted above the crucial 50.0 no-change threshold for the sixteenth successive month — at a healthy 61.0 — which highlighted a continued strong rebound in tech growth since the soft patch reported through the summer of 2012. Indeed, tech output growth has now accelerated to its fastest since that reported in February 2004.

Other key findings for Q4 2013 are:

• UK tech companies report fastest improvement in profitability for six years;
• Solid rate of tech sector job creation maintained at the end of 2013;
• Almost 44% of UK tech firms plan to hire more staff over year ahead, while 7% expect a fall;
• Around twice as many UK tech firms (27%) intend to increase their capex in next 12 months as those that anticipate a reduction (13%);
• East of England special feature: East of England ranks third out of eleven GB regions for concentration of tech jobs; ‘Silicon Fen’ area of Cambridge and South Cambridgeshire is a major hub within this region.

Commenting on the latest Tech Monitor UK results, Tudor Aw, Head of Technology at KPMG, said: “These figures prove once more that the UK tech sector is going from strength to strength. The last quarter of 2013 saw the sector’s best growth performance in almost a decade, with a sharp increase in business activity, a rise in new orders and an increase in profitability despite higher costs. More importantly the sector showed again solid rates of job creation, well above the rates in other sectors of the economy.

“UK tech companies are also more confident about the business outlook than firms in other industry sectors, with growth expectations at tech companies well above UK private sector average, underlining the impact the sector has on the country’s economic performance and the important role tech companies play in the burgeoning recovery.

“Our report also shows that contrary to the popular belief that the UK lags behind the US tech sector, as trends in UK tech business activity closely match the performance of the Nasdaq. These results show that we can be very proud of our tech companies and the strength of the sector in the UK.”

Looking at job creation patterns over the course of the past few years, our survey data highlights that tech companies have been on a sustained staff hiring spree since the global economy started to emerge from recession in late 2009.

In December, the index measuring UK tech sector employment was comfortably above the neutral 50.0 value - at 53.9 - despite slipping to its lowest reading since August. The latest figure extends the current period of continuous jobs growth in the tech sector to just over four years. Meanwhile, the index measuring UK tech sector profitability rose to 55.3 in December, indicating the fastest pace of growth for six years (when the index hit 56.2 in December 2007).

The latest Markit Global Business Outlook Survey, which was conducted in October 2013, showed that 43.9% of UK tech companies plan to raise their staffing levels over the next 12 months, while only 7.0% forecast a drop. The resulting net balance of +36.8% is a reading unsurpassed in the four-year series history.

Strong hiring intentions for tech are accompanied by plans for increased investment spending. Around twice as many firms (27%) forecast a rise in capex as those that anticipate a decline (13%).

Tim Moore, Senior Economist at Markit, added: “Improving economic conditions across developed markets and rising domestic business sentiment have helped propel the UK tech sector to its fastest growth performance for almost a decade.

“Most encouragingly, our figures suggest that the tech sector has provided a positive contribution to recent falls in UK unemployment, as tech companies reported taking on extra staff at a solid clip during the final quarter of 2013.

“Looking ahead, the sector seems well positioned to benefit from any increase in corporate spending patterns over the course of 2014. With survey respondents buoyed by strengthening business conditions so far this winter, a substantial proportion of tech companies now report plans to raise their own capex and staffing levels later this year.

“Overall, our figures highlight that the tech sector has established itself as a key growth engine within the UK economy over the past five years, meaning tech companies will surely play an important role in both boosting UK GDP and bringing down unemployment during the months ahead.”