Software and services spending slides further in 2009

Empty trollies: Firms are still holding back on their SITS spending in the UK

Firms are continuing to hold back on investing in software and IT services (SITS) during the economic downturn, prompting spend in the sector to decline faster than expected.

Figures from analyst firm Pierre Audoin Consultants (PAC) in partnership with TechMarketView (TMV), revealed that SITS spending in the UK will fall 1.3 per cent to £39.5bn in 2009, a drop on the one per cent forecast earlier this year.

But despite the gloom, signs that IT spending is starting to stabilise means that the sector is expected to return to growth next year, although more slowly than anticipated.

Anthony Miller, managing partner at TMV, said: “At the beginning of the year, we said it was going to get worse before it got better. While it is still too early to talk about green shoots of recovery, our reading of the market indicates that the worst may well be behind us.”

Many UK firms have either frozen or cut their discretionary IT budgets, the research claimed, driving a 3.9 per cent drop in software investment and a 5.5 per cent decrease in project services spending. But this decline will be partially offset by a 3.1 per cent rise in outsourcing spend, the firms claimed.

The public sector is the biggest SITS spender – representing nearly 25 per cent of the UK market. The research predicts this will grow by 4.3 per cent this year, as local and central government departments look to cut costs and invest in new programmes to support border control and defence initiatives.

Those hit the hardest by the spending cuts are the retail, services and manufacturing sectors, PAC and TMV claimed.

Nick Mayes, chief analyst at PAC London, said: “In the IT services market, the pipeline of new contract opportunities is expanding, although clients continue to negotiate aggressively with new and incumbent suppliers, while leveraging the cost benefits of offshore sourcing.

“However large suppliers with mature global delivery networks, intimate client relationships and annuity-based outsourcing businesses continue to fare better, as evident in the results of Logica, Atos Origin and Capgemini.”

Miller added: “There may well be a hiatus in kicking off new government IT projects pending the election. But whichever colour of party we see in government next year, we expect that the pace of outsourcing – and dare we say, offshoring – will undoubtedly increase, more so with the Tories.”