UPDATED 07:01 EDT / JULY 08 2016

NEWS

Brexit begins to make its mark on IT spending

Brexit, the so-called British exit from the European Union, has already led to speculation that global IT markets may slump as the British pound slumped to a 31-year low against the U.S. dollar.

Now, Gartner Inc. has stepped up to confirm that speculation, saying worldwide IT spending will remain flat this year in a new forecast that takes into account Britain’s exit from the EU. But that still represents an increase over the negative growth in IT spend recorded last year.

Gartner said currency fluctuations were the main factor behind its reasoning. It says global currencies have been rocked in the face of the U.K.’s decision to go it alone.

“While the U.K. has embarked on a process to change, that change is yet to be defined,” said Gartner’s John-David Lovelock in a statement about the latest IT spending forecast. “The ‘leave’ vote will quickly affect IT spending in the U.K. and in Europe while other changes will take longer.”

According to Lovelock, staffing will probably be the most immediate issue affecting the U.K. He said the U.K. is now less attractive to foreign workers in light of the long-term uncertainty Brexit has created. As such, “Retaining current non-U.K. staff and having less access to qualified new hires from abroad will impair U.K. IT Departments,” Lovelock said.

The British economy has been rocked by currency swings since Brexit, with the decline of the pound reducing Britain’s gross domestic product to the point where France briefly surpassed the U.K. as the fifth largest economy in the world.

Still, the long term outlook for the IT industry is solid, Garter says. Although it describes global IT spending as “lackluster” this year, the pace of change in 2016 “will never be as slow as it is now”. According to the research house, the shift to digital platforms, Internet of Things and new technologies like machine learning is poised to explode in the next few years. Enterprise have been forced to focus on “cost optimization efforts” like replacing software licenses with Software-as-a-Service (SaaS) subscriptions in order to fund these new initiatives. Traditional software licenses often come with expensive “true-up” costs when companies are found to be out of compliance with software contracts. Meanwhile, software audits designed to spot unused “shelfware” tend to add to these costs.

As such, Gartner believes new alternatives such as SaaS models will “fundamentally reshape what is bought, who buys it and how much will be spent”. The result is that Gartner fully expects IT spending to rise through to 2020 at a 2.5 percent clip.

It’s no surprise then that software is one of the few bright spots in this year’s IT forecast, with 5.8 percent growth being predicted. Spending on IT services including consulting will also rise, by 3.7 percent this year.

On the downside, data center spending is only going to increase by a modest two percent this year.

Photo Credit: fishyfish_arcade via Compfight cc

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