The autumn 2019 KPMG tech monitor survey found that new work across the tech sector had dropped for the first time since the middle of 2012 as a result of weakening global economic conditions and ongoing political uncertainty in the UK.
The index is calibrated so that a rating of 50.0 represents flatline growth. The KPMG figure for the third quarter of 2019 was 51.9. The index was down from 52.9 the previous quarter and represented the slowest rate of UK tech sector growth since Q4 2015. New technology orders registered the steepest rate of decline since Q4 2011.
In spite of the slowdown, the industry was doing better than the broader private sector, which hit 50.1 on the index in Q3.
“The loss of momentum was widely attributed to delayed decision-making among clients,” the firm noted. “Anecdotal evidence suggested that Brexit-related uncertainty remained a key headwind to sales volumes, alongside a dent to business confidence from US-China trade frictions. Survey respondents also noted a corresponding drop in business investment spending.”
AccountingWEB users reflect sombre mood
AccountingWEB’s annual software survey uncovered further evidence that uncertainty has put a brake on new finance system spending. Over the past two years, Making Tax Digital has driven the adoption of new, cloud-based accounting systems, particularly among practitioners. But business customers have been slower to convert.
More “old guard” users turned out this year to rate client/server systems from the likes of Sage, Exchequer and Pegasus in our 2019 mid-market accounting/ERP survey category. With cloud accounting software now in use among 80% of the Accounting Excellence practice population, the proportion of cloud users dropped from 54% in 2018 to 43% in 2019.
Many mid-market business and enterprise software installations include customisations and specialist functions that are not currently covered by cloud alternatives. Though they may be aware of reporting and other limitations of their software, these users stick with older systems that do that job, and are able to submit electronic MTD for VAT returns using bridging software.
AccountingWEB’s historic statistics suggest a similar mid-market accounting software slump occurred in 2008-11 following the global financial crisis.
But there are grounds for optimism, according to KPMG’s vice chair Bernard Brown. “The sector has been here before. In 2012 it rebounded following a similarly sharp contraction,” he said.
“The sector has plenty of avenues from which to rediscover growth, scale up, and attract new sources of business. AI and automation are two significant opportunities to drive profits. After all we must not forget the resilience of the tech sector, which continues to outperform other parts of the economy such as manufacturing, transport and hotels and restaurants.”
Suppliers challenge economic gloom
There is also a queue of accountancy software developers ready to challenge economic pessimists. The likes of NetSuite, Sage Intacct and AccountsIQ all see opportunities for growth, particularly among UK mid-market businesses.
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.