Business activity growth at tech firms hits six-and-a-half year high.
Tech sector employment expands at record pace
Recovery accompanied by unprecedented rise in costs amid supply constraints
Above 50 = growth, seasonally adjusted, Above 50 = growth in the next 12 months
KPMG
Sources:
The latest KPMG
Monthly data showed that growth momentum built throughout the quarter as more pandemic restrictions were lifted and business investment picked up. The upturn in output was supported by a substantial rise in new orders that was the quickest for six-and-a-half years. This recovery in sales volumes drove a record increase in employment as tech firms looked to expand capacity and meet rising customer demand.
However, a worldwide shortage of semiconductors escalated during the second quarter of 2021 resulting in the number of manufacturers citing a lack of electrical components reaching a record high since 2004.
Disruptions to global technology supply chains added to cost pressures faced by
'With the lifting of COVID-19 restrictions helping to ease business conditions, the tech sector is powering ahead with recovery and growth with new orders and recruitment hitting new highs. This is great news for the
'Against this positive outlook, there is continued pressure on margins and costs, partly due to increased supply chain expenses as a result of Brexit and the impact of the pandemic on labour costs. Furthermore, there are some clouds on the horizon; a shortage of electrical components, more widespread than at any other time during the past 17 years, is hampering the ability of tech businesses and their customers to meet their recovery plans. This could have a knock-on impact to other businesses and their long-term growth strategies, impacting the pace of the
'Whilst these aforementioned challenges will test the resilience of the
Business activity expands at quickest rate since Q4 2014
At 59.2 in Q2, the headline Business Activity Index rose from 49.2 in Q1 and was well above the neutral 50.0 level that separates expansion from contraction. Furthermore, the rate of output growth was the quickest seen since Q4 2014.
The rollback of lockdown restrictions, alongside improved business and consumer confidence, helped to lift activity, according to survey respondents.
Similarly, business activity rebounded sharply across the rest of the
Fastest increase in new orders for six-and-a-half years
Helping to drive the sharp upturn in business activity at tech companies was a renewed and rapid increase in total new work. At 60.0 in Q2, the index measuring new order volumes rose from 48.9 in Q1 and signalled the steepest rate of growth since Q4 2014.
Improved order books were linked to the restart of delayed projects, greater willingness to spend among clients, and increased export sales.
Steepest rise in tech employment since the survey began in 2003
A rapid rise in sales led to much greater pressure on operating capacity during the second quarter. The latest survey indicated that outstanding business rose to the greatest extent since the start of the index in Q1 2003.
Consequently, tech companies added to their payrolls for a third consecutive quarter. This index rose from 52.3 in Q1 to 58.1 in Q2, which marked a survey-record rate of job creation. Staff hiring among tech companies was also faster than seen across the
Rapid increase in costs as wages rise and supply chains come under strain
Latest data illustrated intense cost pressures at tech firms. The sector registered its steepest increase in operating expenses on record during Q2. The most commonly cited reasons for input cost pressures were Brexit and pandemic-related disruption. Survey respondents frequently cited higher staff costs, rising prices for critical components, and greater transport bills.
Higher costs were generally passed on to clients, with prices charged also rising at the fastest rate since the index began in Q1 2003.
Business confidence highest for over 14 years
The easing of COVID-19 restrictions and successful vaccine rollout lifted business confidence across the
Around 67 percent of the survey panel forecast output growth in the year ahead, while only 6 percent expect a decline. Business investment in digital infrastructure, sustainable technologies, and AI innovation are all forecast to boost tech sector activity in the months ahead.
ENDS
For more information please contact:
Media Relations Manager
+44 (0)20 3078 3732 or +44 (0)7732 400269
lizzy.chesters@kpmg.co.uk
Corporate Communications
T: +44 207 260 2234
joanna.vickers@ihsmarkit.com
Notes to editors
Technology sector industry groups
Software publishing (SIC 582), Computer programming, consultancy and related activities (SIC 620), Data processing, hosting and related activities; web portals (SIC 631), manufacture of computer, electronic and optical products (SIC 26), manufacture of electrical equipment (SIC 27).
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