Technology/media sectors set for fall in business failures, in contrast with rest of UK economy
CRN, 11 Jan 2005
The UK IT sector may turn out to be the economic bright spot in an otherwise flat 2005.
According to market watcher BDO Stoy Hayward's latest Industry Watch report, overall business failures will increase this year as cautious consumer spending and global uncertainty affect business optimism.
This contrasts sharply with 2004, which saw the fewest business failures for six years, marking an eight per cent drop on 2003.
A total of 16,150 firms failed in 2004, compared with 17,550 in 2003. BDO predicted that 16,250 businesses will go bust in 2005.
However, the firm predicted that the technology, media and telecoms (TMT) sectors will see 1,562 failures this year, down 7.2 per cent on the 1,684 in 2004.
Mark Pragnell, managing director of the Centre for Economics and Business Research, which compiled the figures for BDO, said: "With business activity and spending expected to increase in the TMT sectors, there will be a knock-on effect of increased marketing spending and higher investment in IT.
"In 2005 we expect the IT replacement cycle to be more mature."
Alan Norton, head of intelligence at credit reference agency Graydon, agreed that the outlook is fairly positive for IT.
"We have clearly seen a decline in failures in the IT sector. They reached a peak in the second half of 2002. However, there is normally a blip around January or February, when firms that have held on for Christmas sales run out of cash.
"If house prices keep falling then we could see a decline in consumer buying that may affect the IT industry. A lot rides on whether the Bank of England decides to cut interest rates."
Glenn Morrison, managing director of components reseller Upgrade Options, said efficiency is key to survival.
"The IT industry has taken a hammering recently, but the firms that are left have got themselves in an efficient state," he said.
"Rather than dashing for growth they have been dashing to achieve efficiency, and it has paid off. The market is generally good; even the most antiquated businesses are being hauled into the computer age, so the demand is there."
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