IT confidence knocked by economic slowdown

An economic slowdown has led to a slump in IT industry confidence during the first part of 2005 but fears of a full-scale recession have been dismissed, according to the latest UK business optimism barometer.

The quarterly Institute of Chartered Accountants of England and Wales (ICAEW) and Orange business confidence tracker recorded a decline in optimism in the economy for the first time in the two years it has been running.

Pessimism was highest in the retail sector, which has been hit by a slowdown in consumer spending on the high street and suffered ill-effects from the London bombings.

But confidence among finance professionals working in the IT industry has also taken a knock, falling more than eight percentage points since the beginning of the year. The report attributes it to an adjustment of expectations in line with the general economic slowdown.

The report said: "After being one of the most optimistic sectors since the beginning of this survey, this is its weakest score recorded so far. It is likely that respondents from this sector are highly upbeat in times of high economic growth compared to other sectors, given that their sector is one of the most productive."

But confidence remains high in other sectors, such as banking, and the report dismisses the possibility of an imminent economic crash.

"What is clear from this survey - and even from the official data - is that it does not seem to point to a recession for the foreseeable future. A so-called 'soft landing' seems underway and, indeed, it may be even softer than the official economic statistics currently indicate," the report said.

ICAEW chief executive Eric Anstee said: "This is the first time the confidence index has turned negative but the variation of results by sector shows that there is no major problem with the economy. However, while the Business Service sector remains strong, the weakness in the broader economy is clearly consumer driven."

The summer 2005 ICAEW/Orange UK Business Confidence Monitor surveyed 1,107 accountancy and finance professionals about the economic prospects for their firms over the next 12 months.

A survey by the Confederation of British Industry today also warns about an economic slowdown with business confidence falling across the UK for the first time in two years.