Digital transformation spending has to continue

IDC has given its verdict on the Brexit decision outlining what it believes could happen next, with the most likely scenario involving a slight dip in IT spending

IT spending is expected to drop in the UK by a couple of percentage points due to the Brexit decision but IDC believes that most firms were prepared for such an outcome.

The prospect of delayed investments and increasing prices are already things that the channel has been warned are coming. But it might not be the end of the world with the analyst house expecting investments in digital transformation projects will continue.

The analysis from IDC forecasts a decrease of 2% in UK IT spending on a compound annual growth basis through until 2020. Life on the continent should not be impacted too much by the referendum decision.

"The often dramatic experiences in the past decade have enabled leaders across the globe to establish risk processes and act in a more measured fashion. Based on recent feedback from a number of large enterprise leadership teams, we expect a 'wait and see' approach as the political and economic lines are redrawn," said Thomas Meyer, group vice president research at IDC Europe.

"IT spending will likely shift, but the strategic transition towards the digital enterprise will remain, and in fact is likely to accelerate with a greater focus on cost optimization and IT value to the organization's bottom line,” he added.

The analyst house has drawn up three possible scenarios that could be played out with the most likely to be what it describes as a ‘challenging transition’. It believes that what could happen in that scenario is that spending would drop slightly over the next couple of years and then recover to pre-Brexit levels by 2020.

Other less likely scenarios are bleaker with variations on the decline in spending being much worse and more prolonged.

"As we mentioned in our previous assessment on the potential Brexit, we expect IT spend in financial services, manufacturing, and retail to be the most negatively affected by a Brexit decision, together with the public sector, which will face further cuts and austerity measures," said Andrea Siviero, senior research analyst for IDC European Industry Solutions.

"Restructuring the financial single market on one side and the impact on the U.K. current account on the other could potentially lead these industry sectors to struggle as a result of Brexit, Siviero added.

Other analyst houses have already warned of the potential fall-out from the leave vote with Gartner also forecasting a reduction in IT spending and Canalys warning of price rises as a result of exchange rate fluctuations.

The channel, along with the analysts is having to take a wait and see approach, but there is a feeling that any pause in investment cannot be for too long because the pressures on businesses to remain competitive remain.

“Currently it’s a big opportunity to plan for the impact of Brexit. We’ve got two years from when we hit the big red button and start the leave process. While there is, and will be short term turbulence and probably a deflationary impact on the UK economy, I’d suggest that a short period of reflection, while we wait to see what actually happens politically and economically, is the best solution. As they used to say “Don’t panic Mr Mannering!,” said Ian Kilpatrick, chairman of Wick Hill Group.
“On a more personal note, customers may (and it is only may) hesitate in some of their purchasing. But in the world of security, where Wick Hill is, life will continue with the same imperatives. Customers will still require security, and still require the channel to be their trusted advisors. The opportunities will remain unchanged,” he added.​

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