Stop-go budgets reflect economic uncertainty

The future for IT department budgets looks uncertain as the economy comes under pressure from rising oil prices and slower consumer spending, according to the latest Computer Weekly IT Expenditure Report, produced by Kew Associates.

The future for IT department budgets looks uncertain as the economy comes under pressure from rising oil prices and slower consumer spending, according to the latest Computer Weekly IT Expenditure Report, produced by Kew Associates.

The rate of growth in IT spending across the UK fell from a peak of more than 7% in the second quarter of 2004 to 4.8% in the second quarter this year.

But there are signs of underlying resilience in the economy which could prevent the growth rate of IT spending dropping further this year, and may even produce a spending growth increase.

Kew predicted that the net result would be a level of growth in IT spending that was likely to oscillate around 5% in a stop-start pattern until the end of year.

This budget uncertainty would put pressure on IT departments to invest in projects that produce measurable savings to the business and offer a rapid return on investment, said Kew director Kris Wicka.

The research found that businesses plan to prioritise investment in e-commerce, which is expected to experience spending growth of 18% in 2005-2006. This was followed by CRM and broadband, with 7% growth. Spending on ERP, IT security and storage products is expected to grow by between 3% and 4%.

Spending by large companies has grown between 3% and 4% over the past 15 quarters. Spending by small firms has stabilised over the past year to between 7% and 8%.

"IT is not off doing its own thing," said Ben Booth, chairman of the BCS Elite group of IT directors. "If the economy is slowing down, one would expect IT spend to go with that."

The survey results suggest that businesses are improving their profitability, with lower growth in IT spending than previous years.

"People realise they can be a little smarter with what they have got," said Wicka. "They had the scare with the millennium bug and the dotcom crash and they are now looking more closely at how they spend their bucks."

Growth in spending in the IT service sector has remained roughly constant over the past three quarters at just under 6%. The rate of spending increase in the manufacturing sector was 2.8%, down from 6.4% in the first quarter of 2005.

Analysis of the Computer Weekly UK IT Expenditure Survey is available for purchase. For details, e-mail: georgina.tucker@rbi.co.uk

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