IT Spending to fall faster

Spending on software and IT services will fall by 1.3 per cent to £39.5bn in 2009, according to figures from Pierre Audoin Consultants (PAC) and TechMarketView.

The figures are slightly worse than the one per cent decline forecast early in the year.

Many UK organisations have either frozen or cut their discretionary IT budgets, driving a 3.9 per cent drop in software investment and a 5.5 per cent decrease in project services spending.

The decline will be partially offset by a 3.1 per cent rise in outsourcing spend, as businesses aim to reduce their IT operating costs and focus on core, strategic activities.

Nick Mayes, analyst at PAC London, said the pipeline of new contract opportunities is expanding slowly, although clients continue to negotiate aggressively with suppliers.

"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," he said.

The public sector remains the biggest spender on software and IT services, representing nearly 25 per cent of the UK market. It is also due to grow by 4.3 per cent this year to support border control and defence initiatives.

Spending under a prospective Tory government would not necessarily slow, according to Anthony Miller, managing partner at TechMarketView.

“There may well be a hiatus in kicking off new government IT projects pending the election,” he said.

“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."

The industry sectors that will cut software and IT services investment the most severely this year are retail, services and manufacturing.