British outsourcing market shrank by more than a quarter in 2018 -ISG

EDINBURGH, Jan 18 (Reuters) - The British outsourcing market shrank 27 percent to 2.5 billion euros ($2.85 billion) in 2018, weighed down by uncertainty around the nation's decision to leave the European Union, research firm Information Services (NasdaqGM: III - news) Group (ISG (LSE: 3366.L - news) ) said on Friday.

In Europe, the Middle East and Africa (EMEA) traditional business services contracted out to the sector, providing work for companies such as Capita (LSE: CPI.L - news) , Serco and Mitie , rose 9 percent year-on-year however to 12.9 billion euros in 2018.

Within that, traditional services which do not require cloud computing shrank 6 percent but other services which do expanded by almost half to 4.9 billion euros, the research found.

The collapse of British contractor Carillion (Frankfurt: 924047 - news) a year ago was a high-water mark for the sector, forcing the government to step in to guarantee services ranging from road-building to school meals. It sparked public debate about the extent to which private firms should run essential public work, and exacerbated poor investor sentiment around the sector.

A trend towards a more fragmented market was also confirmed, with a 5 percent increase in the number of individual contracts in the UK.

"Even (Taiwan OTC: 6436.TWO - news) though the macro environment is more volatile now than a year ago, demand for sourcing remains strong," said Steve Hall, head of ISG. "We believe the industry will see an accelerating growth trend in 2019, driven by a growing appetite for digital transformation, even in the face of unforeseen macro-economic challenges."

Since the June 2016 Brexit vote, Britain's traditional outsourcing market has slumped, ISG data showed.

Prior to the vote, the UK averaged three 800-million-euro quarters for traditional sourcing per year. Since then only one quarter – the first quarter of 2017, which included the signing of exceptionally large deals – reached that mark.

The EMEA ISG Index, which measures commercial outsourcing contracts with annual contract value of 4 million euros and above, showed that in the fourth quarter alone the overall EMEA outsourcing market grew 5 percent to a value of 3.0 billion euros year-on-year. (Reporting by Elisabeth O'Leary; editing by Stephen Addison)