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The UK’s delayed pandemic response, problematic testing programme and uncertainties related to Brexit are set to have a major negative impact on IT spending, analyst Forrester has warned.
“The most likely scenario will see computer equipment sales drop by 9%, communications equipment by 11% and software spending by 10%,” said Forrester principal analyst Andrew Bartels in a blog post.
The EU has projected that the UK’s real GDP will fall by 8.3% in 2020, while the Bank of England has forecast a 14% decline.
According to Forrester’s Tech budget outlooks for France, Germany and the UK in a Covid-19 recession report, because of the coronavirus and resulting recessions, tech spending in Germany, France and the UK will decline by 5% to 7% in 2020 from 2019 levels in the best-case scenario.
The report predicted that UK companies will cut new projects deeper, causing software spending to fall by 10% and tech consulting and systems integration services by 11%. UK firms will also start to renegotiate their tech outsourcing and telecom contracts, causing spending to fall by 7% in both categories, said the analyst firm.
These spending cuts will continue in the first half of 2021, which will have an impact on new project activity early in the new year. Forrester said that for 2021, it expects full-year spending on software and tech consulting services to be 2% to 3% lower than in 2020. However, it said it expects pickups in business will lead to small but positive growth in communications equipment and telecom services.
Forrester said it expects the unresolved issues of Brexit will return to the fore as lockdown measures relax in the UK. “Open issues about trade and labour policies are unlikely to be resolved in 2020, as had been the goal at the start of the year,” it warned. “Uncertainties about Brexit as well as the potential resurgence of the virus will make businesses extremely cautious in their rehiring and their investments.”
In its best-case scenario, the analyst firm predicted that the UK unemployment rate would almost double from 3.8% in 2019 to 6.7% in 2021, while UK exports would fall more than imports. But it said an aggressive fiscal expansion (government spending will increase by 4% in 2020) could help counter the decline, setting the stage for a 6% economic recovery in 2021.
Bartels said France’s economy is likely to recover sooner than the UK’s because of its aggressive response to the coronavirus and the financial support its government has given businesses and professionals, its strong social safety net and business balance sheets pre-coronavirus.
He also said Forrester expects IT spending in Germany to decline less compared to the UK and France in 2020, with a 5.2% drop in tech spending, and would experience a mild rebound of 4.1% in 2021. In the blog post, Bartels wrote: “Germany’s recovery will be helped by its extensive Covid-19 testing, strengthened employment support programmes, and strong business balance sheets pre-Covid-19.