How would a ‘No Deal’ Brexit impact the UK software market?

15 Jan
UK software market

How would a ‘No Deal’ Brexit impact the UK software market?

Alexandros Stratis                            
Senior Research Analyst,European Enterprise Applications
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With the level of uncertainty surrounding Brexit reaching new heights practically every week, predicting what the impact is going to be on the UK software market is quite challenging. Whereas a second referendum, an extension of Article 50 or revocation of UK’s withdrawal will extend the current “status-quo” and will mean, at least for the short-term “business as usual”, the fact is that on the 29th of March 2019, the UK will leave the EU by automatic operation of law.

In that case, i.e. the event of a “no deal” Brexit or a negotiated Brexit, based on the proposed withdrawal agreement or some version of it, software investment of UK businesses is bound to be affected while the general macroeconomic impact of Brexit cannot be disregarded as a mitigating factor for software or IT spending as a whole.

A Brexit that complicates and disrupts supply chains, imposes new trading and tariff related regulations, and creates a diverging governing regime, will require companies to rethink their software landscape and their capabilities. Managing a more complicated supply chain, or e.g. factoring-in changes in the “just in time” processes for manufacturers or making sure that access to the best talent is still available, will be key priorities post Brexit, but also form vital demands for ongoing digital transformation journeys. Therefore, this overlap is bound to create new “asks” and “musts” but will remain aligned with the wave of DX in Western Europe.

Larger corporations have already resolved to carry on with such investments and Brexit as such will not likely affect their decisions or force them off-course. Perhaps some will be forced to relocate their HQs post-Brexit or apply tweaks to their operating model to accommodate Brexit, but overall, software investments from large businesses will remain relatively stable in the UK, as software is still needed to run production and cannot be switched off or left unmaintained and unsupported.

Nevertheless, the SMB sector which has been highlighted as a key factor for growth in software spending in Western Europe and the UK in particular, is bound to be more affected leading to slower than expected software spending after 2020. Sluggish GDP growth, declining investments from small business owners and uncertainty over regulations and loss of access to the Common Market, is making that segment of the market significant more fragile after Brexit. Decisions to invest in software from SMB owners are likely to be put on hold, deferred or even outright cancelled if overall GDP growth stalls, macroeconomic performance drops and the return on investment is simply not there for them.

In conclusion, the impact for larger businesses is expected to be more managed, due to existing DX mandates and corporate contingency planning, while SMB software spending will be certainly affected. It is very likely to slow down, impacting the growth of the UK software market, especially as we move past 2020 and the impact of Brexit on the UK economy is more keenly felt.

If you would like Alexandros Stratis to help with your understanding of the software market in Europe, head over to https://uk.idc.com/ and drop your details in the form on the top right.

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