KPMG takes a look at how the tech sector employment is expanding at a record pace as firms gear up for strong growth in 2022.
The KPMG UK Tech Monitor Index showed that the tech sector maintained a strong growth trajectory in Q4, with output expanding at a sharp rate that broadly matched that seen in Q3. The upturn was supported by a further increase in sales amid reports of robust customer demand, though the rate of new order growth softened since Q3.
Business confidence regarding the next 12 months was upbeat and drove a record increase in tech sector employment. However, firms faced severe cost pressures, with input costs and output charges rising at unprecedented rates in Q4.
KPMG UK Tech Monitor Index
Above 50 = growth, seasonally adjusted Above 50 = growth in the next 12 months
Lisa Heneghan, Chief Digital Officer, KPMG in the UK, said, “the UK tech sector faces a balancing act this year: on the one hand, demand for digital continues to gather pace, but on the other, tech organizations face significant challenges around talent and supply chain – neither of which will disappear soon. With this in mind, only time will tell whether the sector can maintain current growth levels throughout 2022.”
“Despite this uncertainty, it’s fantastic to see that confidence has not been knocked. As UK businesses emerge from the pandemic, I expect to see even more investment in digital, and the tech sector is poised to support these ambitions. In addition, most tech organizations have weathered the storm over the last two years, and as we see the impact of the pandemic reduce in the coming months, the sector’s positive outlook is understandable,” Heneghan added.
Business activity growth remains sharp in Q4
The headline Business Activity Index posted 55.8 in Q4, little-changed from 55.9 in Q3, and signaled a further sharp increase in tech sector output. Firms that reported higher business activity often reported a sustained recovery in market conditions from pandemic-related disruption and subsequent increases in customer demand.
Business activity also expanded sharply across the rest of the UK economy, with the rate of growth remaining slightly quicker than that seen in the tech sector. Monthly data showed that this partly reflected strong gains in the hospitality and leisure sectors during October and November as these sectors benefited from improved client confidence. However, consumer-facing businesses saw a notable slowdown in growth momentum during December amid the emergence of the Omicron variant. Meanwhile, monthly data highlighted that output growth at tech companies accelerated at the end of 2021.
New business rises at a slower pace.
Higher activity levels were supported by more new work received by tech firms. However, though solid, the rate of growth was not as strong as those seen in the prior two quarters.
Companies often stated that demand conditions had improved as the economy continued to recover from the pandemic, with several firms commenting on new client wins and stronger foreign demand, particularly across Europe and the US.
Firms express robust optimism towards the year ahead.
Business confidence remained strongly positive in Q4, despite the prospect of increased disruption to the economy due to the Omicron variant. The degree of optimism was among the highest in 14 years and stronger than seen across the rest of the UK private sector.
New product investment, planned company expansions, and export opportunities are anticipated to support growth in 2022. However, there were concerns that strained supply chains and rising costs could weigh on performance.
Record increase in tech sector employment
Staffing levels at UK tech companies increased at the quickest rate on record in Q4 amid forecasts of rising business requirements in the year ahead and greater efforts to fill vacancies. The upturn in employment was also notably quicker than the UK-wide trend.
However, capacity pressures persisted largely due to severe and ongoing supply chain delays, which have greatly impacted firms’ ability to process and complete orders. As a result, outstanding business rose at a rate that was close to the record-high seen in Q2 2021.
Cost pressures hit fresh survey high
Input costs faced by tech firms increased at the fastest rate on record in Q4, driven by supplier price hikes and input shortages alongside greater energy and staffing costs. In addition, escalating business expenses led tech firms to raise their output prices again, with the rate of inflation hitting a fresh series high in Q4.
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