Demand for IT contractors strengthening despite Brexit uncertainty

Demand for IT contractors has strengthened over the past six months despite the uncertainty caused by the vote to leave the European Union. At first glance this seems counterintuitive. Historically, contractors have been the first into and first out of a period of economic malaise or even just uncertainty. The fear was that the EU referendum result would send the jobs market into a tailspin, and that contractors would be first to feel the pain They are, after all, a flexible resource and it is much more cost effective for organisations to divest themselves of contractors than employees. In the months leading up to the referendum last June, that is exactly what we saw. Demand for contractors weakened as organisations hesitated over their IT investments until some measure of clarity was achieved. 

It could be argued that the current position is not much clearer. The UK is leaving the EU but on what terms is still a matter for speculation. Prime Minister Theresa May’s letter triggering Article 50 sheds some light on the sort of relationship the UK might have with the EU post March 2019 and there are suggestions from both sides that continuity will be a priority. This will be good news for business investment, much of which is spent on IT hardware and services.   

Our research, among 600 IT contractors, indicates that there has been a modest, albeit comforting, upturn in demand for contract IT skills since the referendum. The positive change in the market over the last six months has not been dramatic but nevertheless important when you remember that many commentators were forecasting economic Armageddon. A growing proportion of IT contractors have seen their daily rates increase over the past six months. 20.5% of contractors are reporting an increase in their daily rates, compared to 19.4% just before the referendum. At the same time, the proportion of IT contractors experiencing rate cuts is falling. 16.6% of contractors recently experienced a reduction in rates, down from 18.6% last June. Some banks cut daily rates for contractors last year – Barclays, Credit Suisse and Morgan Stanley, to name just three – but most of those rate cuts were imposed prior to or immediately after the referendum, with little evidence of further cuts since.   

Our study also shows that while 30.1% of IT contractors feel negatively about the UK quitting the EU, that has fallen from 37.8% who felt negatively just after the referendum result. Most IT contractors are either positive or neutral about the UK’s prospects outside the EU. From a hiring perspective, the current uncertainty is likely to be less damaging to contractors than permanent employees. Employers are likely to be reticent to commit to permanent hires, and any business transformation projects related to Brexit will be of limited duration and require highly specialised skills, making them ideal for contractors.

The proportion of IT contractors who chose contracting due to a lack of permanent roles has fallen over the past six months from 7.1% to 5.4%. For a growing proportion of workers, contracting remains a positive choice. Very few IT professionals are forced into contracting due to a lack of permanent opportunities. There was a fear that a shortage of permanent roles resulting from Brexit would push more IT professionals towards contracting, but far from being a means to a permanent job, for 95% of IT professionals contracting remains a lifestyle decision.

IT contractors are likely to find that demand for their skills holds up well in 2017 and beyond, regardless of what happens with Brexit. In November 2016, Theresa May committed the UK to a £2bn annual fund for scientific research and development. The UK’s low productivity has been one of the conundrums of the post financial crisis economy, and so investment in technology will be important if we are to close the productivity gap on our G7 competitors. 

In the past IT was often regarded as a discretionary spend but now machine learning, artificial intelligence and automation are considered essential to increasing worker productivity and competitive advantage. IT automation is transforming business operations and processes, allowing highly skilled workers to focus on more value-added work for companies and their customers. These vital IT skills are enhancing companies’ ability to predict rather than react to rapidly changing demands and customer expectations. 

Whether the UK has the skills base to meet demand longer term will partly depend on what sort of immigration system is put in place, or whether free movement of labour continues for a transitional period beyond March 2019, as the Government indicated it might. The current points based immigration regime, which applies to non-EU workers, is barely able to cope with demand, so much will depend on the immigration cap that is put in place and which, if any, IT occupations are added to the Shortage Occupation list, which allows for fast track visas. 

Despite Brexit uncertainty and all the advances in digital technologies, we are seeing a continuing rise in demand for IT contractors with automation, cloud, big data and cyber security skills. Skills shortages in these key areas are predicted to worsen this year, which means that contractors are more likely to see multiple contract offers and bidding wars for their skills. 

According to Tech Nation 2017, the UK’s digital tech sector grew 50% faster than the economy overall in 2015 (4.8% versus 3.2%). There are now 1.64 million digital tech jobs in the UK, and the digital sector is creating jobs two times faster than the non-digital sector. In 2016 UK digital tech investment reached £6.8billion, 50% higher than any other European country. Over the past five years London has attracted more investment than Paris, Berlin and Amsterdam combined. Foreign direct investment into the UK has partly depended on access to the single market. Regardless of whether the Government secures tariff-free access to the single market, the UK retains many other advantages as a tech hub and is likely to flourish outside the EU, so long as it can provide the skills that tech businesses need to grow.   

Derek Kelly, CEO,  Nixon Williams 

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