The collapsing pound and uncertainty surrounding Brexit are set to wipe as much as 5 per cent off previously expected spending on technology in the UK this year, Gartner has warned.
The projected decline will come as both consumers and businesses delay buying items such as new smartphones, PCs and tablets as they become more cautious and find their overall spending squeezed by sharply rising prices on imports, the tech research group said.
Along with this cut in “discretionary” tech spending, companies are also likely to abandon some of the mergers and acquisitions and strategic expansion plans that normally lead to extra spending on IT, said John-David Lovelock, vice-president of research.
Only a day before the Brexit vote, Gartner issued a forecast for 1.7 per cent growth in UK tech spending this year, from last year’s £123.9bn. The UK’s vote to leave the EU will slice 2-5 per cent from that, Mr Lovelock said.
Since the year is already half over, that implies a second-half drop of much greater magnitude, though Gartner said different seasonal patterns in various parts of the tech market made it hard to generalise.
The expected scale and rapidity of the slump would put it on a par with the 2008-09 financial crisis, when tech spending by UK businesses and the government dropped by 7.7 per cent.
But the Brexit collapse looks set to last much longer: the 2016 decline would only reflect the first phase of retrenchment, before the country even triggers the Article 50 that will lead to negotiations with the EU, with highly uncertain consequences for tech demand, said Mr Lovelock.
Meanwhile, the plunge in sterling looks likely to feed through quickly into higher prices in British shops. US-based PC maker Dell confirmed an across-the-board price rise to UK retailers this week, following a report in The Register that it had pushed through double-digit increases.
The company refused to confirm the scale of the rises but said the move had been forced by sterling’s fall against the dollar, the currency in which its components are priced.
Sterling’s decline will also be felt in other technology costs. For instance, companies typically pay an annual maintenance fee that is equal to 20 per cent of the original purchase price of new software. Much of this is priced in dollars, leaving British companies that have not already paid their 2016 fees facing a price increase, said Mr Lovelock.
The immediate hit to tech spending does not reflect more intangible factors that will hurt the UK tech sector, such as the impact of the Brexit vote on the most internationally mobile part of the sector’s workforce.
Software developers working in the UK and paid in sterling will be drawn by higher salaries elsewhere, particularly if they are not British and worry about their status after the country leaves the EU, Mr Lovelock said.