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UK tech sector being held back by slowing economy

(Image credit: Image source: Shutterstock/everything possible)

The UK's tech sector is in danger of being held back by the nationwide slowing of the country's economy, new figures have warned.

Accounting giant KPMG has said its latest analysis shows that despite continued growth over the past seven years, the tech sector set to contract amid worries over the effect of the UK leaving the EU and the continuing US-China dispute.

The firm says its KPMG UK Tech Monitor Index, which measures the strength of business activity across the sector, dropped from 54.4 in Q1 to 53.0 in Q2, signalling a softer rate of growth than at the start of 2019 as worries over the effect of Brexit continue to spook business.

There was some brighter news, as KPMG found Q2 saw a moderate sales volume increase at tech companies in contrast with the decline reported by some other areas of the UK economy. 

New product launches and entry into overseas markets were found to be some of keys factors boosting tech company performance, however sluggish demand from domestic customers also meant to the rise in orders being the weakrest since 2015.

“Innovative tech software, services, manufacturing and equipment is at the heart of any business wanting to succeed in today’s market," said Bernard Brown, vice chair at KPMG UK. "So it is heartening to still see sales volume up and growth in the sector despite it beginning to feel the effects of political and economic uncertainty.”

“The slowdown in both sector growth and employment growth during the second quarter of 2019 is perhaps unsurprising given the slide in business optimism reported at the start of this year and the challenging global economic landscape.

“Delays to business investment decisions and greater risk aversion among large corporates are likely to hold back UK tech sector performance during the second half of 2019, but exporting firms could feel a boost to sales from looser central bank policy in the US and euro area. 

"While it is tempting to sit tight, businesses must act with an entrepreneurial and resilient spirit before we’ll see a significant, positive change in market confidence, furthermore reflected in the job market.”

Mike Moore is Deputy Editor at TechRadar Pro, and has worked as a B2B and B2C tech journalist for nearly a decade, including at one of the UK's leading national newspapers and ITProPortal.