A report today has revealed that £27bn in enterprise IT spending has been put on hold by UK businesses as they await more clarity on what kind of Brexit happens at the end of March.
Not good news for fintechs as 68% of UK finance firms are among those holding back projects.
These figures were compiled from responses from over 500 UK businesses, by Opinium, which was commissioned by internet service provider Beaming.
Even at a time of huge uncertainty these banks have to spend money on maintaining existing IT, so the whole thing doesn’t collapse. But many fintech suppliers are working on new projects at banks, to digitise things and it is likely that money for new projects will be the most likely to be held back.
The £27bn being held back makes the massive drop in venture capital investment into tech community in the UK, recently reported, more understandable. It is not surprising given their customers have put so much spending on hold due to Brexit.
I recently blogged about how venture capitalists are reacting to this. In 2017/18 tech industry investment in London didn’t just fall, it plummeted, from £2.53bn to £1.8bn. £700m!
The size of the drop might have been a surprise but the fintech industry was expecting to take a hit, because the VCs themselves had made it clear. For example during a panel at a fintech event I attended in July, Martin De Wever, CEO at VC fund Force Over Mass Capital, said London is at risk of “losing a big portion” of fintech business at the moment.
Meanwhile tech hubs in other countries are cashing in. The London & Partners figures revealed that French tech firms raised over £1 billion in 2018, compared with the £748m raised in 2017. And Berlin’s saw strong growth.“What you are seeing right now is all the other countries jumping on it and trying to get companies to open operations in their countries,” said De Ever..
The UK’s exit from the EU is causing a chain of uncertainty which. End user businesses are holding back spending as a result over concerns on how they will do business after 29 March this year, they are holding back investments until they know more.
Given that most businesses projects today involve digital, this is bad news for tech suppliers who would typically be the recipients of some of this money. This in turn makes venture capitalists reluctant to invest in tech companies that are struggling to sell.
This is also a warning of the risk the UK government is taking. Things are only being put on hold for now or investment delayed, but if Brexit is as bad for business than many think things could get tough.