As an immediate fall out of Brexit, the IT spending in the UK will decline of up to 10 percent in 2016 and continuing into 2017.
The implications will be far-reaching and vary in certainty and timing, but a weak pound will result in immediately higher technology prices, said Canalys.
Indian software / BPO industry association NASSCOM also said it is facing uncertain future due to the latest developments in the UK and Europe.
Canalys said unemployment and inflation in the UK are low, and the economic outlook was positive.
Canalys’ IT spending forecast, based on the UK remaining in the EU, was in the range of $90 billion to $100 billion in the UK. “Canalys now expects this to fall by up to 10 percent in 2016, based on the public sector and businesses cutting expenditure to reduce risk,” said Matthew Ball, Principal Analyst.
The outlook on IT spending for 2017 could be worse, with up to a 15 percent decline as IT budgets are set lower on the prediction of a tough year ahead and ongoing uncertainty.
Sterling’s fall has added to its continuing volatility against the US dollar, which has been an issue since the start of the year. It could feasibly drop below the $1.20 mark if confidence deteriorates further and capital continues to flow to safer assets.
“This will be a key issue for the IT sector, as technology prices rise due to higher import costs,” said Matthew Ball, principal analyst at Canalys.
“Contracts will have to be renegotiated and proposals requoted due to the strong shift in value. Any new activity will be suspended until rates stabilize. International businesses will have to assess their Sterling cash position and level of exposure, as their assets will be worth less if not adequately hedged against,” Matthew Ball said.
“Trade disruption, political instability, recession, stagflation, talent pool reduction and the collapse of the EU are all potential outcomes that need consideration,” said Canalys research analyst Claudio Stahnke.
Canalys said financial markets will be volatile for at least the next six months, as different data points emerge and prominent business and political leaders pass judgment. The UK is in danger of moving into recession, as organizations and consumers look to reduce risk by delaying spending and placing an immediate suspension on all high-value transactions until the situation stabilizes.