UK tech businesses are growing in confidence about their economic prospects, despite many economic concerns and the mass tech layoffs seen earlier this year.

This is according to research commissioned by Integro Accounting, an accountancy provider to contractors, freelancers, and small businesses, which found rising confidence amid stubbornly high inflation, rising interest rates, and ongoing layoffs made by big tech companies affecting UK-based staff and suppliers.

Over 400 tech businesses were sampled across on a range of subjects ranging from sales volumes, staffing shortages and inflationary pressures.

IT consultancy businesses, which includes software developers and consultants providing technical support, are reporting a marked improvement across most metrics whereas businesses in many other sectors, such as retail, housebuilding, and hospitality, are gloomier about their prospects.

Graph 1: How do you expect your business’s overall performance to change over the next 12 months? Percentage of tech sector respondents who said they expect performance to increase, stay the same, decrease or not sure.

On the question “How do you expect your business’s overall performance to change over the next 12 months?” 62% of IT consultancy businesses sampled in Q2 said that they expect performance to improve, compared to 51% when asked the same question in Q1 (Graph 1).

“The UK’s tech sector is rebounding strongly at a time when many other sectors of the economy are struggling, Christian Hickmott, managing director of Integro Accounting, commented. “There are signs that business failures among tech businesses are starting to fall from their peak at the end of 2022 whereas the upward trend is continuing for many other sectors of the economy.”

“Rising interest rates are exacerbating the financial strain many businesses are facing as they struggle to service loans. Tech businesses usually carry lower levels of debt than capital intensive industries, which means they are relatively insulated from rate rises. This puts them in a much more resilient position as interest rates continue to rise from record lows.”

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He adds: “The dilemma for UK tech companies is that access to equity funding is drying up, which makes businesses looking to scale more reliant on expensive debt. Given that many tech businesses are not profitable, they may not have the option to fund growth from cash reserves.”

Integro Accounting also points out that talent shortages in the IT sector are continuing to ease. Over three quarters (77%) of IT business leaders are no longer experiencing a shortage of workers, up from 69% in Q1 and 66% in Q4 of 2022.

Graph 2: Is your business currently experiencing a shortage of workers? Percentage of tech sector respondents who said yes, no, not sure or not applicable.

Of the IT consultancies currently experiencing worker shortages, 41% said they had been unable to fully meet demand as a result – a dramatic improvement on the 54% of IT consultancies experiencing worker shortages who were unable to fully meet demand in Q1 (Graph 2).

“The UK has been relatively shielded from the mass layoffs of the US tech giants, which has affected both contractors and employees,” Hickmott said. “While there have been layoffs and hiring freezes, these have benefited other users of tech skills who have often been priced out of the market in the war for talent with big tech.”

“Hirers are now generally finding they have a larger candidate pool to choose from, whereas previously they might have had only a couple of viable applicants for a role.”

Graphs and data provided by Integro Accounting.