Analysts have warned that IT budgets are being seen as a soft target as firms look to cut back on investment.
Managers are coming under increasing pressure to reduce spending with business investment falling a record 10 per cent last year, according to figures from the Office of National Statistics (ONS).
The ONS report shows that UK private sector spending on IT also fell last year, by around 12 per cent in software and close to 30 per cent in IT hardware.
In 2001 companies spent £4.7bn on software investments, but in 2002 this dropped to £4.2bn. In the fourth quarter of last year software spending was £1.1bn, compared to £1.3bn in the same quarter of 2001.
Spending on hardware also fell. UK companies spent £6bn on hardware last year, compared to £7.8bn in 2001. And in the last quarter of 2002 hardware spending stood at £1.6bn, compared to £1.9bn in the same quarter of 2001.
Big spenders, such as automotive giant Ford, have identified technology budgets as being in the frontline for cutbacks.
The company is to chop its $1.5bn (£946m) IT budget by 20 per cent this year as part of a wider cost-cutting programme.
Julian Hewett, chief analyst at market watcher Ovum Holway, indicated that companies will spend their budgets on existing IT projects and infrastructure, and that "there is little on the horizon for new developments".
"There is belt-tightening everywhere, but IT is seen as a soft target," he added.
Rationalising expenditure is a priority for IT departments, according to Hewett, with businesses focusing on reducing supplier numbers and consolidating the number of servers.
But analyst IDC is more positive, reporting that 85 per cent of managers expect IT spending to remain constant or even increase during 2003.
After reducing spending over the past two years, there is "pent up" demand for storage hardware, PCs and network equipment. Almost half of this will be on "routine infrastructure upgrades", IDC concluded.
Other areas of spending will be in Enterprise Application Integration, as well as security solutions and e-government, according to Bernard Lamborghini, chairman of industry body the European Information Technology Observatory.
Developments in e-government and broadband services will promote "a new cycle" of IT spending, he said.
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