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Contractors encouraged to target niche sectors as clients adopt risk-averse approach

Contractors in the UK’s finance and IT sectors continue to experience solid demand for their services, despite recent national and international events impacting global economies and dampening optimism amongst clients.

Morgan McKinley’s UK Salary Guide 2016 indicates the growth of demand for finance contractors has moderated in many sub-sectors. However, the more risk-averse approach adopted by many contractor clients has resulted in increasing appetite for contractors in regulatory disciplines, such as compliance.

Rising cyber-security concerns and the emergence of the UK as a worldwide leader in Fintech also look set to generate plenty of IT contract opportunities over the coming years. This will be welcome news for contractors, with growth in the tech industries expected to slow down over the next decade.

A recent datasheet from the Tech Partnership forecasts a 3.2% rate of employment growth within the tech industries between now and 2025, compared with 7.3% for the workforce as a whole.

Hiring intentions hit by economic uncertainty

Following a strong start, hiring intentions amongst London’s financial firms moderated during the second half of last year, and have largely continued to do so in 2016. This has been attributed to several macroeconomic factors, including uncertainty over a possible Brexit, the freefall of global commodities prices and the continued pressure within Asian markets.

Despite the downturn, there are still plenty of opportunities available for contractors within specific disciplines. With economic uncertainty resulting in diminished appetite for risk amongst companies, there has been notable growth in employment in areas such as compliance, risk management and internal audit.

Compliance market remains buoyant

The contract market in compliance is proving particularly buoyant, with companies facing heavy pressure to meet regulatory deadlines. Clients who need to fill a highly niche role will need to compete with higher rates of pay due to the strong demand for the required skillset.

As a result, contractors who combine experience and knowledge of compliance issues with project management skills can command very high day rates, which have increased by roughly 20% on average.

SME banks and commerce provide likely sources of contracts

Whilst contractor demand growth has remained relatively stagnant across the finance sector as a whole, there are still numerous other areas where contractor demand is accelerating.

SME banks are considered more likely to recruit contractors to help them through regulatory requirements. The fact that these roles entail a high degree of responsibility means contractors will be able to command high day rates.

Commerce and industry has also seen a significant increase in contract vacancies as of late. Whereas contractors within this sector were previously often used to alleviate pressure when there was no budget left for permanent staff, appointments are now considered more strategic, with companies closely scrutinising their impact on business performance.

Contracting seen as an increasingly attractive prospect

Contractor rates in London’s finance sector are expected to continue to rise at a solid pace in 2016. Morgan McKinley estimates that contingent staff will be able to command fee increases of between 5% and 10% over the next 12 months.

However, the forecast for contractors is outstripped by that for permanent finance employees, who are expected to enjoy salary increases of roughly 15-20%, should they decide to change employers over the course of the year.

Despite this Morgan McKinley identifies a noticeable increase in permanent employees considering contract opportunities, adding: “Organisations are also working hard to retain their contractors by imposing 12-month tenures so to offer longevity in their position.”

IT contractor demand struggling to match permanent hires

Whilst IT contractors in the capital continue to find demand for their services, there is a tendency amongst clients to prioritise permanent hires. Morgan McKinley attributes this to the desire of companies to secure sustained innovation by acquiring talent in full-time positions:

“Contract hiring is often the last resort where companies cannot find people with the right skills and experience quickly enough. If you are in the innovation business you want to secure knowledge into your organisation so that you can constantly drive your offerings forward with new products, features and apps.”

Supporting this notion, the Tech Partnership’s datasheet highlights that the portion of self-employed within the tech industries in 2015 was just below the proportion of self-employed workers as a whole (14%, compared with 15%).

Morgan McKinley does however note that other sectors where innovation isn’t the core business – such as banking and energy – continue to view contractors as a more attractive proposition.

Niche skills remain highly sought-after

Nonetheless, IT contractors with enough nous to target emerging markets shouldn’t find opportunities hard to come by. Cyber-security specialists are highly sought-after with companies becoming increasingly aware of the impact that security breaches can have on revenues and brand reputation.

Overall, average contractor day rates have risen as a result of rising demand. Lower level experts’ rates can range from around £300 to as much as £800 where a company has either identified a significant risk or its security has been breached. The competition for talent is also expected to sharpen during 2016.

Morgan McKinley adds: “Consultancies are now increasingly offering onsite managed services and can command fees of up to £2,000 per day for an experienced IT security troubleshooter.”

Fintech sector looks promising for IT contractors

With London emerging as the industry’s global leader, Fintech is also a highly tempting sector. Morgan McKinley cites many instances in 2015 where midsized Fintech companies doubled their developer headcount to keep pace with clients’ interest.

Last year, the UK’s Fintech sector represented £6.6bn in revenue. With experts expressing concern that future growth could be stunted by skills shortages, contractors should be able to command lucrative fees as a result of rising demand.

Similarly, the Tech Partnership also notes some fluctuations when comparing sub-sectors. Figures indicate that contract opportunities are easier to come by in areas such as games (25%) and IT software and services (17%), suggesting contractors who pay close attention to market trends can steal a march on the competition.

Published: 27 April 2016

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