The Impact of Covid-19 on UK SITS Market: Conclusions & Updated Outlook

This is the third and final blog offering our initial take on the potential impact of the Covid-19 coronavirus on the UK software and IT services market. In previous blogs, we looked at the horizontal and vertical impact, and in this blog we offer our final thoughts on market growth expectations. 

The Covid-19 coronavirus crisis affects different sectors in different ways. 

Companies whose business model is based on the production, transportation, and distribution of physical goods are being hit particularly hard. This is especially true for manufacturers of capital goods, less so for manufacturers of everyday goods. 

It also exposes the weaknesses of business models that require physical presence and manual processes. Against this background, we expect a boost for digitalization and automation in the long term. Those companies that have already digitized and automated the majority of their processes are already in a good position. Likewise, companies that have made progress in shifting to cloud-based delivery are now benefiting from the scalability of the performance and flexibility of costs.  

The enforced mass experiment in digital remote working from home will have lasting consequences for the UK economy and workforce, with online collaboration becoming a much larger part of many people’s life. 

But overall, the IT industry will suffer. 

This applies in particular to project activity and associated license business. Many companies will have to conserve funds over the coming months and will review and re-evaluate all expenses. Many projects will be put on hold or stopped. In addition, bankruptcies are to be expected, both among customers of software providers and service providers, as well as in the IT industry itself. 

We will evaluate in more detail in the coming days how strongly the business situation of the software and IT services industry will change. We will then adjust our SITSI® figures accordingly. One thing is certain, however: the impact of the coronavirus crisis on the market will be substantial. 

The market for both software and IT services in the UK will shrink significantly. Instead of growth of a healthy 4.2% in 2020 (for software and IT services combined), we now assume a decline of around 1% in our optimistic scenario. However, if we do not get a grip on the situation in the next three months, the decline in growth may well reach double digits.