The next three to six months will be crucial in assessing whether a slowdown in the rate of business growth in the UK is part of a wider trend, according to KPMG technology sector head Tudor Aw.
Aw was speaking as the financial services firm launched the latest edition of its Tech Monitor UK report, which tracks ICT business performance, confidence and outlook across the UK.
On KPMG’s index, scores of over 50 indicate growth. The technology sector scored 59.2 during the third quarter of 2014, ahead of the combined total for other private sector industries.
Improving economic conditions, better access to funding and greater business spending were flagged as key factors in boosting activity during Q3. In the technology sector, respondents spoke of successful business expansion strategies, new product developments and entry into new markets, revealed KPMG.
Momentum slowing, elections looming
However, the report also said the post-recession momentum was slowing, with Q3 business activity down four points compared with Q2.
“The slowdown in growth rates needs to be taken seriously. The UK tech sector is increasingly being seen as a bellwether for the wider economy and is in no way immune to macro-economic concerns,” said Aw.
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“The industry and policymakers cannot afford to be complacent. They must ensure the sector gets the right level of support to continue to thrive.
“The index measuring profitability suggests that UK tech companies posted a lower score in Q3 than in the previous quarter, signalling a much slower improvement in profitability across the sector. Although our respondents remain confident, this highlights the fragility of the economic recovery and it remains to be seen how the oncoming election will impact this good mood.”
Bright future for Reading
There were numerous bright spots in the latest report, as KPMG also found that the availability of technology jobs was improving. The employment index rose two points to 54.5 in Q3, with companies starting to hire again after a boost in sales over the summer.
KPMG reported on technology clusters around the UK, noting the dominance of Reading – where one in five enterprises are classed as technology companies and the proportion of technology firms is three times the national average.
London also exceeded averages, with 88% of local authorities in the capital above the UK average for technology companies. KPMG generally found a good spread around the city, although noted that smaller enterprises were concentrated in Tower Hamlets, Hackney and Islington.
KPMG said the opening of Crossrail will enhance the status of London and the M4 corridor as the best places for technology companies to do business. Other boroughs will probably begin to see more smaller technology companies congregating in their boundaries as rent increases force early-stage startups out of Shoreditch and Tech City.
“London and the South East have played leading roles in the UK tech sector growth story,” concluded Aw. “The focus should now turn to replicating this success in other parts of the UK, to benefit both the sector and the economy as a whole.”