The worsening global economic outlook is starting to take its toll on IT budgets, with evidence emerging that a quarter of firms are already cutting IT spend.

Indian outsourcer Infosys this week revealed that 25 of its top 100 customers plan to reduce IT spending in 2008, with 19 earmarking cuts of more than 10 per cent. Another 50 are freezing their IT budgets.

Spending on consulting services has already contracted, according to Graham Willie, a PricewaterhouseCoopers (PWC) human resources practitioner with responsibility for the technology sector. He said PWC had noticed more clients trying to save costs by carrying out projects internally and increasingly focusing on core maintenance work.

IT trade body Intellect said it has also seen evidence of major IT projects being mothballed. The main cuts are affecting new IT projects in the financial services sector, where the impact of the credit crunch is clearly being felt most keenly, said Carrie Hartnell, Intellect’s transformational business programme manager.

Despite this, market watcher Pierre Audoin Consultants (PAC) believes that IT spending in the financial sector will continue to rise in 2008. But the economic gloom permeating the sector has forced it to revise its forecasts. The consulting firm now predicts IT spending will increase by 4.6 per cent this year, compared with 8.4 per cent in 2007.

Credit card firm Capital One is emblematic of the belt-tightening happening across the sector, according to PAC’s Rajeena Brar. It recently axed 750 IT-related jobs in its Nottingham offices, moving the roles offshore.

“While consulting services, systems integration, IT contract staff and IT training
will be [cut] in 2008, outsourcing is expected to increase,” Brar added.

But David Truch, chair of the British Computer Society management forum, argued that firms looking to cut IT costs simply through outsourcing are jeopardising their long-term prospects. There is a risk that companies will lose their ability to innovate, he said. “They often miss the opportunity to redesign their business,” he added.

Furthermore, worsening overall economic conditions should provide the stimulus to increase IT spending, argued Martyn Hart, chairman of the National Outsourcing Association. “IT budgets are likely to increase as companies increase investment in IT to save money. For example, they will invest in web-based services for call centres.”