Optimism in the UK tech sector dropped to a 10-year low in Q1, despite business activity growth recovering to its fastest pace since Q2 of last year, according to the latest quarterly survey of UK technology sector companies by KPMG.
The KPMG UK Tech Monitor Index, which measures the strength of business activity across the sector, rebounded to 54.4 in Q1, from 52.3 at the end of 2018 - the weakest pace of growth registered in three years. A reading above 50 shows an increase in overall business activity across the sector, whereas a reading below indicates a decline.
The sector - which includes technology software and services providers, and technology equipment manufacturers - also outperformed the overall UK economy in Q1 2019, which grew at the weakest pace (50.6) for over six years.
Tech firms attributed faster sales growth to resilient demand from the US and from diversification into new overseas markets. The new business index registered at 55.1 in Q1, up from 51.9 in the final quarter of last year.
Despite improved growth in the sector, businesses had become less optimistic for the next 12 months, with the index measuring sentiment dropping from 69.8 in Q4 last year to 65.6. Firms reported that Brexit-related uncertainty and a subdued global economy had the potential to dampen corporate spending, alongside concerns on the tech sector skills shortage threatening growth.
While the rate of employment growth remained among the weakest since 2013 in Q1, 43% of tech firms said they expected to boost their workforces in the next 12 months, while only 11% forecast a reduction.
KPMG UK vice chair Bernard Brown said: “The latest Index ultimately outlines the resilience of the UK tech sector, and the strength of its ability to compete globally.
“It’s encouraging to see tech firms’ output and order books rebound from the low levels of growth seen at the end of 2018, as corporate demand for technology services and a healthy pipeline of new product launches supported sector growth in Q1.
“While business may be concerned about global economic headwinds threatening customer spending, confidence is being buoyed by long term trends where we have a track-record for innovation.
“Advances in AI-enabled enterprise software, innovation in fintech and a strong demand for cloud technologies are all excellent opportunities for the sector to grow in the year ahead.”