The UK IT industry will decline in real terms until at least 2016, and there is a real risk of the sector reaching a decade of downturn, according to research from TechMarketView (TMV).
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The analyst firm said the take-up of technologies designed to reduce costs, such as cloud computing, as well as continued economic slowdown, are combining to reduce market growth in terms of revenues.
The company estimates that the software and IT services (SITS) segment shrank by 3% in the past 12 months in real terms if inflation was taken into account. This accounted for a fourth straight year of decline, and TMV does not envisage a turnaround.
“We see the pain easing over coming years, but we do not expect the UK SITS market to grow again in real terms before 2016,” said TMV. “These forecasts reinforce our view that the UK SITS market will grow slower than the economy for the foreseeable future – indeed it is hard to envision a set of conditions when it would once again grow faster than GDP.”
The analyst company said it was not just the financial crisis that is limiting growth, but also new disruptive technologies that are bringing down the cost of IT – and supplier revenues with it.
"It’s not just the financial crisis which is constraining growth. It is also the inexorable march of disruptive technology trends, such as the consumerisation of enterprise IT, BYOD [bring-your-own-device], mobile internet, social media, big data, offshoring and, of course, cloud computing,” said TMV. “The key characteristic they have in common is that they are all designed to reduce the cost of computing – in other words, they are all deflationary.”
The company said public sector spending cuts took out more than £900m from the UK software and IT services market in 2010/11, and expects a further £350m to be cut in 2012.
"As a result, we expect the share of the UK SITS market attributable to the public sector to decline from 29% in 2010 (£11.8bn) to 27% in 2015 (£11.8bn). We do not expect UK public sector SITS spending to return to growth at the headline level until 2014,” it stated.
In contrast, said TMV, the private sector is growing. “We estimate that UK private sector SITS spending in 2011 grew by 3.2% at the headline level to reach £29.7bn. We expect to see slightly faster growth this year (3.4%), and then growth is expected to slow. We forecast that the UK private sector SITS market will be worth £31.8bn in 2015,” it said.