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Tech sector growth slows in Q2

UK tech sector growth slowed in the second quarter of 2015 as political uncertainties took their toll on the sector, the  latest  KPMG/Markit Tech Monitor UK survey shows.

The  impact of the General Election and uncertainties in the eurozone both played a role in slowing growth. However firms appear to be looking to bounce back with staff hiring intentions during the quarter having jumped to a survey-record high as tech companies showed greater confidence about future workloads.

The report, which tracks the performance, confidence and employment outlook of UK technology businesses, illustrated that the second quarter of the year marked three years of sustained business activity growth across the UK tech sector, but the pace of expansion was the weakest since Q1 2013.

Those surveyed suggested that uncertainty at home and abroad had weighed on sales volumes and new business wins in Q2 with business spending decisions delayed ahead of the UK General Election, while some firms also noted that the euro crisis had acted as a drag on confidence.

The slowdown in business activity didn’t resonate with profitability in the sector. In Q2 2015, the tech sector experienced growth in profits, with the index posted at 54.3, up from 52.6 in Q1, to register the strongest rate of improvement since the end of 2014.

Tudor Aw, partner and head of technology sector at KPMG, said: “The latest Tech Monitor report can be summarised effectively as a ‘game of two halves’.

“The second quarter of 2015 showed yet another quarter of solid growth but the overall momentum weakened from peaks seen in 2014.  This reflected the impact of a number of uncertainties, most notably the General Election and euro area uncertainties.”

Looking ahead, tech firms have highly upbeat projections for activity, job creation and capex during the next 12 months. In terms of business activity, just over half (57%) expect an increase over the year ahead and only 6% forecast a decline.

As for job creation, almost half of the respondents (49%) anticipate a rise in payroll numbers over the year ahead, indicating the strongest employment projections across the UK tech sector since this index began in October 2009.

Around 33% of the survey panel expect a rise in capex over the next 12 months and only 7% anticipate a reduction (an improvement from 29% and 14% respectively in Q1). Meanwhile, the vast majority of the survey panel (73%) forecast an upturn in profits during the year ahead, against just 2% that foresee a decline.

Aw added: “Happily, it looks like Tech companies were just pressing the pause button as our survey also shows that despite this Q2 slowdown, tech companies are very upbeat about the future, forecasting an upturn in profitability, strong job hiring intentions and continued investment in capex.

“This is consistent with what I am hearing from Tech companies, that business activity is coming back strongly post-election uncertainties and that there are tailwinds from benign economic conditions, increasing maturity of cloud solutions and customer needs to address their IT infrastructure as growth picks up.”