Brexit fears contribute to worst tech sector performance in seven years

Hiring also put on hold as companies seek to take fewer risks amid political uncertainty, report finds

The UK's tech sector recorded its weakest performance since the second quarter of 2012, with uncertainty around Brexit largely to blame, according to new research.

Leaving the EU has "subdued" global trade conditions and delayed major business spending decisions in the run-up to December's general election, according to KPMG.

The professional services network released its monitor index for the UK's tech sector on Monday, which reported overall business activity was unchanged from Q3, ending seven and a half years of expansion.

The index read 50.1 for 2019's fourth quarter, down from 52.0 in the third quarter of last year. The index was close to the neutral "50.0" threshold that separates expansion from contraction and the lowest reading since the second quarter of 2012.

There was also a drop in staffing levels across the sector in the last three months of the year, as companies delayed hiring and became more "risk-averse", according to KPMG.

Some tech firms cited difficulties recruiting suitably skilled staff in an already tight labour market, which had limited their ability to fill vacancies. Although only modest overall, the fall in payroll numbers was the steepest recorded for over a decade.

While employment figures seem to have stagnated, seen as the result of uncertainty around Brexit, investment in the UK's tech sector jumped up 44%, according to Tech Nation. In January it was reported that venture capital investment hit a record high of £11.7 billion at the end of 2019.

"Although our latest findings show that the UK tech sector is starting the new decade on the back foot, there are some encouraging signals for tech sector prospects in 2020," said Bernard Brown, vice chair at KPMG.

"With the general election and 'Brexit day' officially out of the way, it would seem that recent political and economic uncertainty is now paving the way towards more optimism, reflected in the sharp rebound in business confidence towards the year-ahead outlook. Additionally, US-China trade frictions may start to exert less of an impact on business investment decisions."

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