The latest figure for the UK tech sector on the index from KPMG fell below the no-change 50.0 mark to 47.1.
According to survey respondents, business activity slumped due to the impact of the COVID-19 pandemic at the end of Q1, particularly the fall in non-essential corporate spending, cancelled projects and client closures.
A decline in production of tech also played a factor, which reflects supply chain shock internationally due to the closure of plants in Asia.
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For UK-based tech manufacturers, fulfilling orders proved a challenge as shortages of electronics components and delayed shipments of vital inputs occurred.
Additionally, data from IHS Markit, which worked alongside KPMG’s research, showed the fastest drop in private sector output for over 20 years, recording an index figure of 36.0.
Bernard Brown, vice chair at KPMG UK said: “The tech sector was not alone in reporting a severe impact on business activity from the COVID-19 pandemic in the first quarter of 2020, which has inevitably resulted in cutbacks to spending and investment.”
Silver linings
There were positives to take from the latest findings from KPMG, however. Firstly, software development saw a slight upturn in business activity, recording an index figure of 50.8.
As for employment within the sector, this increased month-to-month during Q1, reaching its strongest pace since Q2 2019. This was attributed to an immediate need to hire staff in order to finish projects.
Additionally, some areas declared continuation of growth in Q1, with this being attributed to rising demand for services related to remote working from home and business continuity.
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“With UK tech companies adding to their payrolls at the start of 2020, a recovery in staff hiring was the most positive development highlighted by them so far this year,” Brown continued. “Although tech business confidence fell in recent months, confidence remains stronger than most sectors of the UK economy, helped by pockets of growth within software & services amongst growing consumer demand for relevant digital solutions to cope in ‘the new normal’.
“Many tech firms anticipate a bounce in demand once measures to slow the spread of the virus can be lifted, but the uncertain duration appears to weigh heavily on optimism about growth prospects in 2020.
“It is clear that as tech companies continue to innovate and grow, their provision of critical technology infrastructure and support for businesses continuity will see many opportunities for the industry to make lasting contributions to the UK economy in these difficult times.”
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