Confidence increases for UK tech businesses about their economic prospects despite big tech layoffs

• Skills shortages easing – 77% not reporting talent shortages
• Majority of tech businesses having to absorb inflationary costs rather than pass them on

UK tech businesses are growing in confidence about their economic prospects, according to research commissioned by Integro Accounting, multi-award winning accountancy providers to contractors, freelancers and small businesses.

This is despite stubbornly high inflation, rising interest rates and ongoing layoffs made by big tech companies affecting UK-based staff and suppliers.

Over 400 tech businesses were sampled, across a range of subjects from sales volumes, staffing shortages and inflationary pressures. IT consultancy businesses, which include software developers and consultants providing technical support, are reporting a marked improvement across most metrics whereas businesses in many other sectors, such as retail, housebuilding, and hospitality, are gloomier about their prospects.

On the question “How do you expect your business’ overall performance to change over the next 12 months?” 62% of IT consultancy businesses sampled in Q2 said that they expect performance to improve, compared to 51% when asked the same question in Q1.

Christian Hickmott, Managing Director of Integro Accounting, comments: “The UK’s tech sector is rebounding strongly at a time many other sectors of the economy are struggling. There are signs that business failures among tech businesses are starting to fall from their peak at the end of 2022, whereas the upward trend is continuing for many other sectors of the economy.”

“Rising interest rates are exacerbating the financial strain many businesses are facing as they struggle to service loans. Tech businesses usually carry lower levels of debt than capital intensive industries, which means they are relatively insulated from rate rises. This puts them in a much more resilient position as interest rates continue to rise from record lows.”

He adds: “The dilemma for UK tech companies is that access to equity funding is drying up, which makes businesses that are looking to scale more reliant on expensive debt. Given that many tech businesses are not profitable, they may not have the option to fund growth from cash reserves.”

Integro Accounting also points out that talent shortages in the IT sector are continuing to ease. Over three quarters (77%) of IT business leaders are no longer experiencing a shortage of workers, up from 69% in Q1 and 66% in Q4 of 2022. Of the IT consultancies currently experiencing worker shortages, 41% said they had been unable to fully meet demand as a result – a dramatic improvement on the 54% of IT consultancies experiencing worker shortages, unable to fully meet demand in Q1.

Christian Hickmott says: “The UK has been relatively shielded from the mass layoffs from the US tech giants, which has affected both contractors and employees. While there have been layoffs and hiring freezes, these have benefited other users of tech skills who have often been priced out of the market in the war for talent with big tech.”

“Hirers are now generally finding they have a larger candidate pool to choose from, whereas previously they might have had only a couple of viable applicants for a role.”