UK IT services market falls in real terms

Software and services sector shrank one per cent last year with inflation stripped out, according to study

The UK software and IT services (SITS) sector shrank in real terms for the first time in five years in 2008, research has found.

According to the first edition of MarketViews from research house TechMarketView LLP, SITS spending fell one per cent in 2008 with inflation stripped out - and will decrease by about a further two per cent in 2009.

And that follows four years of annual growth topping three per cent between 2004 and 2007.

The analyst, which was co-founded by Richard Holway, predicted that the market would not start growing again in real terms until 2011.

While discretionary spending on software licences and related project services is set to shrink by three to five per cent, TechMarketView said the outsourcing sector will continue its growth spurt. Business process outsourcing in particular will be a hotspot, growing at around eight per cent.

IT service providers with a high exposure to the public sector will also be relatively unscathed, the analyst said.

But overall, it offered a grave diagnosis of the market’s health.

“TechMarketView forecasts that the recovery will only start in the second half of 2010 resulting in a return to modest growth in 2011,” it stated. “However, even these bleak forecasts depend on economic conditions not deteriorating still further.

“Should things get worse, then the SITS recession could be deeper and longer than even we predict, particularly in the private sector.”