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UK’s IT and BPO spend plummets because of Brexit uncertainty

UK businesses cut their investment in IT and business process outsourcing last year because of confusion over Brexit, but there was a 68% rise in public sector spending

UK businesses spent 60% less on IT and business process outsourcing (BPO) in 2018 than in 2017 because of the uncertainty that Brexit is causing, according to research.

The private sector saw a fall in spending last year, with deals worth £2.9bn agreed compared with deals worth £5.1bn signed in 2017.

The report, compiled by analyst firm Nelson Hall for service provider Arvato, said this huge fall was driven by uncertainty surrounding the UK’s departure from the European Union.

But the fall in private sector spending was offset to some extent by a 68% rise in the public sector IT and BPO spend compared with 2017, when £1.8bn was spent.

Public sector organisations in the UK spent £2.9bn on IT and BPO in 2018, with IT services accounting for the lion’s share, according to research.

Central government departments accounted for 95% of the public sector spending, with datacentres, cloud infrastructure and application management the areas where they spend on outsourced services. However, local government spending fell from £258m in 2017 to £176m last year.

The report said IT outsourcing drove the increase in public sector spending. “A surge in technology investment was behind the strong performance, with spending on IT outsourcing agreements reaching £2bn in 2018 – an 84% year-on-year rise,” it said.

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The UK public sector has spent about 70% more than UK businesses on IT outsourcing and business process outsourcing over the last two years, with growth driven by mid-sized deals, according to research from Information Services Group.

The National Outsourcing Association has vowed to prove doubters of outsourcing wrong through proposed research, as part of its Outsourcing Works campaign.

IT and digital services contributed more to the UK economy in 2013 than any other part of the business services sector, but while turnover has increased by about £6bn over the past four years, no more jobs have been created in that time.

The size of the average deal signed was down by 8% in 2018 compared with the previous year, at £35.4m.

Debra Maxwell, UK CEO at Arvato, said: “Our findings show that procurement teams are increasingly moving away from long-term, high-value contracts, choosing instead to access services through new government frameworks, such as G-cloud, to deliver the transformation they need at speed.”

The number of deals signed across the UK outsourcing market was 148 last year, compared with 104 in 2017, and 58% were in the public sector.

Peter Schumacher, CEO at management consultancy the Value Leadership Group, said all IT services providers are struggling in the UK. “Companies face uncertainty and don’t want to be making big decisions on contracts at the moment,” he said.

Mark Lewis, outsourcing lawyer at Bryan Cave Leighton Paisner, said the number of mega deals is significantly down but there is a lot of activity in the mid-market."I am surprised by these figures," he added, referring to the Nelson Hall numbers.

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