Intellect State of the Sector survey

Economic Context

The economy emerged from recession in Q3 2012, when growth was estimated to be 1%, after contracting for three quarters in a row. Overall, the economy grew by 0.2% in 2012, a slower rate than either in 2011 (0.9%) or 2010 (1.8%) and slower than the Office of Budget Responsibility had forecast in March 2012.

Unemployment was 2.5 million in Q3 2012, 156,000 lower than a year earlier; representing 7.8% of the economically active population. The number of people in employment rose by 584,000 over the last year. Of these 394,000 were full time positions. The number working in part-time jobs because they could not find a full time job is 1.38 million, 17.5% of all part-time workers; while private sector employment has increased by 1.13 million since Q1 2010.

Summary of findings

Take a look at our infographic or download the appendix for the full data

Economic Context

In spite of continuing global and domestic uncertainty, there have been some signs of economic improvement over the past few months. A 1% increase in GDP growth in Q3, a recent fall in unemployment and an increase in business investment of 3.7% in Q3 are all examples of this. In spite of these positive indications, as Mervyn King has recently warned, the UK may still be in for a period of persistently low growth and a subdued recovery. With public sector borrowing higher than expected in October and the Eurozone crisis far from over, it is clear that the recovery is far from secure.

Summary of findings

As with our survey in Q2, it is clear that there is a great deal of unease about the state of the UK economy. The confidence of the vast majority of respondents over the past three months has either stayed the same (51.4%) or decreased (27.8%). The confidence of around only 20% has improved. Looking ahead a year, the majority of respondents (51.4%) think the economy will be in much the same position as it is now, 29.2% think that things will improve and 15.3% believe that things will worsen.

When it comes to the business prospects of firms over the past quarter, there has been an improvement for 38.9%. However for 37.5% of companies things have either stayed the same or worsened (23.6%). Coupled with this is the fact that the majority of companies (54.2%) have not increased their respective levels of business investment over the past three months. When asked what the most significant barrier to growth for their respective business is, a lack of business confidence (28.1%) and domestic demand (20.3%) which cited as the overriding factors.

In spite of this uncertainty, the majority of respondents (56.9%) still intend on increasing their level of business investment in the next 12 months. The majority of companies (56.2%) have also recruited additional staff in the past 6 months and the vast majority are either very likely (26.5%) or quite likely (45.6%) to recruit extra staff in the next six months. When asked how easy it is to identify suitable candidates for vacancies, there was no real verdict with around 40.6% describing it as "fairly easy" and 36.2% stating that it is "quite difficult".

When asked what they would above all like the Chancellor to focus on in his 2012 Autumn Statement it was infrastructure investment which secured the greatest percentage of votes (24.2%). Other important factors include cutting employment taxes (15.2%) and easing access to finance (13.6%).

Finally when asked about exports, 42% of respondents only do business in the UK. For those companies, 37.8% have plans to export to new markets in next 12-18 months and 45.9% do not. An encouraging number of companies already export to North America (27.5%), 39.1% export to Europe and almost a third (29%) do business in the Middle East.

Conclusions
Whilst there are grounds for optimism in these findings, it is evident that there is a lack of confidence about the current and future state of the economy amongst respondents. The Chancellor's imminent Autumn Statement therefore comes at a critical time and it is vital that positive steps are taken to boost business investment from the technology sector which is critical to a robust and sustainable economic recovery.

Intellect state of the sector survey appendix 3rd quarter 2012

Economic Context

It is clear that when it comes to the economy the prevailing mood is a negative one. In the past few weeks there have been figures from the ONS suggesting there was a 0.7% contraction in GDP growth in the second quarter of this year, the Bank of England has slashed its growth forecast for 2012 to zero and the UK trade deficit is now at a record 15 year high. The economy has now shrunk in three consecutive quarters and the UK’s economic output is now around 4.5% less than it was in 2008. On top of this, the UK’s recovery is lagging further and further behind the likes of Germany, France and the United States. All in all, there would appear to be little room for optimism. In spite of the official figures and continued downgrades of growth forecasts, there are nonetheless some more positive signals. Recent business surveys and other market data have indicated that things are not quite as bad as the official numbers suggest. UK unemployment also fell by 46,000 to 2.56 million in the three months to June compared with the previous quarter according to the latest figures from the ONS.

Summary of findings

Unsurprisingly, when it comes to the general state of the economy, there is a great deal of uncertainty amongst Intellect members. In terms of the past six months, the confidence of the vast majority of respondents has either stayed the same (52.3%) or decreased (39.5%). Looking forward to a year from now, whilst 22% believe that the economy will improve, overall the picture is less positive with 44.2% believing that things will stay the same and over a quarter (26.7%) think things will get worse.

There are however encouraging signs when it comes to the technology sector. Business prospects for 50.6% of companies have improved over the past six months and 60.5% of member companies have increased their respective levels of business investment over the past six months. In the context of constrained business investment, this is a surprising level of optimism. In addition, over two-thirds of respondents (67.1%) expect their business to expand over the next six months. Moreover, the fact that 43.4% of respondents are very likely and 39.5% will possibly recruit extra staff in the next six months is another positive. Nevertheless, respondents cited a lack of demand and a general lack of business confidence as being barriers to growth.

In terms of what respondents want to see the Chancellor focus on between now and his next autumn statement, infrastructure investment was deemed as most critical. In addition, respondents want to see added focus on reducing business taxes, easing access to finance and the development of an industrial policy. In fact 60.6% of respondents want to see government take an active approach to industrial policy. The message from industry to government would therefore appear to be to maintain the focus on deficit reduction but be more aggressive in implementing the growth plan.

Interestingly when asked how well government understands the UK technology industry, over two-thirds (66.2%) of respondents think they do not understand the sector very well. In addition, 43.0% of members believe that on balance coalition policies have had a negative impact on the sector, 26.6% are unsure of the impact and 30.4% of respondents believe there has been a positive impact. Finally, when asked whether or not the UK has the potential to become Europe’s leading technology centre (the objective set by the Chancellor in Budget 2012) an overwhelming majority of Intellect members are positive. Whilst this is clearly an encouraging sign, there is a feeling that the actions government have taken thus far do not quite go far enough and that a more comprehensive plan or strategy is required.

In terms of the government’s deficit reduction strategy, 24.1% of respondents are very supportive with a further 62% supportive. Only 5.1% were not at all supportive. Interestingly, whilst there is overwhelming support for the principal of deficit reduction, only 21.5% believe that the government will meet its deficit reduction target with the vast majority (59.4%) believing they will not. When it comes to the government’s growth plan, almost two-thirds (64.6%) are not at all confident and only 26.6% of respondents have some degree of confidence. This is clearly a worrying sign for the government and illustrates a growing sense of unease amongst business leaders about the government’s plan for growth.

Conclusions
Overall, the findings from this survey underline the fact that there is a great deal of uncertainty about the state of the UK economy. However, there is some cause for optimism in terms of some of the data about the technology sector. In spite of the difficult economic headwinds, technology companies for the most part are expecting to expand their business and to take on new staff. By no means does this survey provide a complete picture but these are encouraging trends which we will continue to monitor closely.

Download appendix for full data tables (PDF 554kb)

Media mentions

30/08/2012 - Financial Times - London steps up tech start-ups push (£)

21/08/2012 - Telegraph: Good news Britain: Two thirds of technology firms to expand within six months

21/08/2012 - City A.M: Technology firms look to hire more staff despite double dip

21/08/2012 - Computer Weekly: Technology companies expand despite economic concerns, says Intellect

21/08/2012 - Computer World UK: Tech firms upbeat about jobs creation in next 6 months

21/08/2012 - The Information Daily: Technology companies looking to create new jobs in next six months

21/08/2012 - Channel Web: Tech companies predict further growth

21/08/2012 - Marketing Profs: The New Content Marketer—Winning Strategies for Driving Results with Video and Social Media