With record investment in UK tech in 2019, what impact will Brexit have?

By Ellen Daniel

The UK is due to leave the European Union at the end of this month, after three deadline extensions in 2019.

Earlier this month, MPs backed the Withdrawal Agreement Bill at 330 to 231 with the UK scheduled to leave on January 31, followed by a 11-month transition period, if approved by the EU.

Since the EU referendum in 2016, much has been written about the potential fallout of the UK’s exit from the EU across many industries, but nearly four years later, clarity has not yet been achieved.

According to Bloomberg, Brexit has so far cost the UK $170bn, with the country’s economy thought to be 3% smaller than it could have been if it had not voted to leave the EU, according to S&P Global Ratings.

However, the UK tech industry, particularly in London, appears to have so far bucked this trend, experiencing continued growth, despite much talk of the impact Brexit could have.

According to research by Tech Nation, the UK tech sector received a record investment of £10.1bn in 2019, with more venture capital investment than another other country in Europe. Eight new unicorn companies (valued over $1bn) were created in 2019 and venture capital investment grew $4.1bn year-on-year. These figures suggest that fears over whether the UK tech industry could be stalled by Brexit appear unfounded so far.

But whether this will continue once the UK officially leaves remains to be seen, with ongoing concerns over supply chains, data storage – a fear of 43% of UK leaders according to Net App – data exchange for the purpose of cybersecurity and the danger of organisations relocating elsewhere.

Under Boris Johnson’s Withdrawal Agreement, the UK will leave the EU customs union, and both sides will work towards a Free Trade Agreement later this year.

Brexit challenges for the UK tech industry

One area that could be affected is the UK tech sector’s ability to attract much-needed talent. According to the New Statesman, there are more international tech workers, from the EU and beyond, in London than in any other city.

John Kostoulas, Senior Research Director at Gartner commented on the on the talent and culture effects of Brexit on the UK tech industry:

“The UK job market is facing an unusual mix of high labour demand combined with a decreasing labour supply. After a pause before the election, recruitment activities seem to pick up again. At the same time, EU net migration is at the lowest point of the last 16 years and is not offset by the increase of non-EU migration.

“The economic prospects arising from any of the Brexit scenarios certainly play a role in reducing the voluntary mobility of non-UK-born workers. And as the uncertainty over the type of Brexit will continue until at least the end of this year, mobile workers might have several longer-term options for economic migration. As a result, a crucial parameter for success in the tight UK labour market for employers will be the effectiveness of their labour retention and reskilling.”

With the conservative government achieving a majority in the House of Commons in December 2019’s general election, a greater degree of clarity has now been achieved. However, despite a record year for investment in the industry, investors may act more cautiously while the impact of Brexit plays out over the next few years and the UK figures out its ongoing relationship with the EU.

Stewart Buchanan, VP Analyst at Gartner said that for CIOS, this means having to “act at a moment’s notice”:

“CIOs must plan for potential scenarios and get ready to act at a moment’s notice. The financial agility of their agile development teams are likely to be tested as uncertainty is resolved into 2021. CIOs must complete all necessary systems changes at a time of fiscal year when IT budgets are becoming depleted.

“They may not have the luxury of inaction and withholding budget until year-end. Multi-disciplinary enterprise Brexit initiatives often overlook IT costs and some CIOs have been asked to maintain or cut the IT budget in response. CIOs must also prepare to exploit any new business opportunities they charge forward to the business as they arise.”

John Lovelock, Research Vice President at Gartner believes that IT spending will be cautious until “business uncertainty” eases:

“UK IT spending in 2020 and 2021 will mirror the United States spending patterns in the post-2009 recession, for similar reasons. A year for poor IT spending and business uncertainty.  Looking to 2020, business confidence and IT budget growth will not fully return, but there will be the expectation for IT to produce results to drive business. As a result, IT will move away from upfront cost projects, and rely more heavily on “as a service” offerings. Software as a service, platform as a services and infrastructure as a service will all show growth rates above 10% in 2020 and 2021. While PC, servers and storage will all face declining spending.”

Read more: How could “unclear and unrealistic” Brexit plans impact the tech industry?