UK tech sector outperformed wider UK economy in Q4 2014, says KPMG report
The UK tech sector enjoyed robust growth in the last quarter of 2014, avoiding the slowdown seen across the wider UK economy, according to the latest KPMG/Markit Tech Monitor UK survey.
The report, which tracks the performance, confidence and employment outlook of UK technology businesses, illustrated that tech sector jobs growth accelerated, delivering sustained improvements that now stretches to five years. It also found the widest performance gap between the tech sector and the rest of the UK economy for almost six years.
According to the report, the UK tech sector enjoyed a robust and accelerated improvement in profitability in the final quarter of 2014. Much of this was down to new business gains, the success of new products and slower cost inflation. At 55.8 in Q4, the index measuring tech sector profitability was the second-highest for any quarter since Q4 2007. The report also found:
- Tech sector job creation and new business trends exceeded UK-wide benchmarks by substantial margins in the final quarter of last year, with firms citing a wave of new product launches and greater investment spending as the reasons for a hike in employment
- More than half of the survey panel (53%) expect a rise in business activity over the next 12 months while only 7% forecast a reduction
- New orders received by the UK tech sector were well above the 50.0 no-change value, at 60.1, up from 57.9 at the end of Q3.
- Tech sector job hiring intentions and capex plans remain upbeat for the next 12 months, but are less positive than those reported in mid-2014.
In a word of caution, the survey points out that tech companies tempered their business confidence in Q4 2014, broadly mirroring overall UK service sector patterns, with the latest survey pointing to the lowest level of optimism for two years.
Commenting on the latest Tech Monitor UK results, Tudor Aw, partner and head of technology sector at KPMG, said: “This quarter’s report shows that the concerns highlighted in Q3 2014 about the sector entering into storm clouds have been misplaced. The previous survey showed that while tech sector business activity had been strong, the rate of expansion had slowed noticeably. Remarkably, the final quarter of 2014 marks a period of sustained job creation in the sector that now stretches to five years, something that should be celebrated loudly.
“In the run up to the General Election, the message from the latest Tech Monitor UK survey is clear; the tech sector remains a star performer of the economic recovery, and the future looks resoundingly bright in terms of industry growth and job creation.”
Tech start-ups show greater momentum and resilience than other sectors
The report goes on to provide an in-depth analysis of the UK start-up scene. It reveals that the number of new tech start-ups is rising rapidly and looks to have reached a seven-year high in 2014, after falling sharply in the direct aftermath of the global financial crisis. Start-up numbers are estimated to have risen by around 40% year-on-year and hit a post-crisis peak in absolute terms in 2014.
It also found that although the UK average survival rate for start-ups has improved in recent years, tech start-ups have outperformed the national average with the sector survival rate at 82%, comfortably above the UK-wide survival trend of 76%.
Commenting on the UK start-up scene, Tudor Aw said: “The survey results echo my personal view that the UK tech start-up scene is vibrant and far outstripping other sectors. For those naysayers, it also shows that they have a higher survival rate than the UK average for all start-ups. I sense momentum is building and that it is only a matter of time when we begin to rival the west coast.”
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
UK Tech Sector Purchasing Managers’ Index® (PMI®) survey data
UK tech sector PMI data is derived from a representative subcategory of approximately 150 tech companies within Markit’s regular PMI® surveys of UK manufacturers and service providers. Tech is defined in this report as technology software, technology services and manufacturing of technology equipment. All figures are seasonally adjusted and smoothed using a three-month moving average, to better highlight underlying trends in the data.
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