The UK tech sector is on course to register its fastest year of expansion since 2007, according to the latest figures from KPMG’s Tech Monitor.

The report, which tracks UK technology businesses performance, confidence and employment outlook, also suggests that tech companies have outperformed all UK industry sectors in terms of both business activity and new business growth during 2014.

Based on an Index, where scores above 50 indicate growth, the data puts the UK tech sector on 59.2 – a figure which outperforms the combined total for other private sector industries (58.4).

Benign economic conditions, improving access to funding and greater business spending were all highlighted by respondents as the key factors boosting activity during the third quarter of 2014.

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In a word of caution, however, the report warns that momentum slowed in Q3. The Index shows, for example, that business activity scored 55.6 in Q3, compared to last quarter’s score of 59.7.

Looking at employment in the latest report it is clear that the availability of tech-driven jobs has improved, with the employment index ring from 52.3 in Q2 to 54.5 in Q3. 

Companies also appear to be pressing the button on hiring in response to a boost in sales over the recent summer period. In fact 62% say they anticipate a rise in business activity over the year ahead, while only 8% forecast a decline.

Yet while the context is incredibly positive, there was a cautionary note in that profitability remains weak despite all the growth. 

The ‘cluster’ effect

The report goes on to provide an in-depth analysis of technology clusters throughout the UK, and confirms Reading’s position as the number one regional technology centre.

Almost one in five enterprises in the town are classed as tech companies and the proportion of tech businesses in Reading is three times the national average. 

This dominance spreads through the M4 corridor (from Hounslow in London, through Slough, Bracknell Forest and Wokingham), all of which appear in the Top 15 ranked local authorities and boast more than twice the national proportion of tech companies. 

Not surprisingly, London accounts for the highest-ranking region, with 88% of its local authorities exceeding the UK average of tech companies. 

While there is a good spread of technology companies throughout the capital, the highest concentration of smaller enterprises can be found in the East Inner London boroughs such as Tower Hamlets, Hackney and Islington, highlighting the success of initiatives such as Tech City. 

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 “Despite slower growth during the last quarter, the overall picture for 2014 is upbeat for the tech sector,” said Tudor Aw, technology sector head at KPMG. “Indeed, the survey signals the highest confidence among UK tech companies compared to the UK average since our records began in 2003. 

“This is mainly down to successful business expansion strategies, new product developments and entry into new markets – as well as improving economic conditions.

“However, the slowdown in growth rates needs to be taken seriously. The UK tech sector is increasingly being seen as a bellwether for the wider economy and is in no way immune to macro-economic concerns. The next three to six months will be crucial in assessing whether this slowdown is part of an ongoing decline.”