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The UK software and IT services (SITS) industry will limp along for at least the rest of this year and the next before staging a very gradual recovery.

This is according to bean-counters at TechMarketView, whose stats show the sector has been in annual decline since the recession that started in 2008 – and shows no signs of improving in the medium term.

"We think 2011 could be even slightly worse than 2010," it warned. "We are now forecasting that the UK SITS market will shrink again in real terms by 3 per cent ... and then one more year of decline in 2012, of just another 1 per cent."

The post-2008 spending uptick was likely the result of pent-up demand rather than the resumption of normal commercial spending patterns, but lacklustre GDP is not helping to speed project sign-offs by CIOs.

And budgets are still being heavily slanted towards "cost out initiative" as user businesses continue to break up projects and only green light projects that show ROI in the same fiscal year, TMV added.

"This is why we have reduced our growth forecasts from 2012 onwards," it said, "We still believe that we remain in the midst of a five-year market decline in real terms."

Cloud computing will have the most disruptive influence on the UK SITS segment, accounting for 30 per cent or £12.5bn of sales by 2014.

But only software publishers, resellers and service suppliers that overhaul business and operating models will take advantage of this new delivery mode and those can do this the quickest stand the best chance of making money.

Investment in core software such as ERP is slowing and "the peak caused by regular renewal cycles are unlikely to reappear", said the analyst.

"As cloud adoption increases, the traditional software model of large, long-term deals and high margin support contracts will break down.

"We expect to see businesses committing to smaller projects with rapid returns, and increasing the proportion of hosted and SaaS applications to the detriment of on-premise ones, resulting in low and relatively flat growth as spend in evened out," said TMV.

Spend on traditional application services are set to be hit by the transition to the cloud in a shift to provisioning, while provisioning budgets in the infrastructure services market will gradually erode those in core infrastructure operations.

Business Process Outsourcing is forecast to remain the fastest growing subset of the UK SITS sector – it has continued to grow since 2008 – and TMV expects process platform to be a "game-changer" as businesses accelerate cloud adoption.

Other disruptive factors shaping the UK SITS forecast include SaaS, mobile apps and social media, as it is perceived that these three factors can impact on "costs, business agility and better engagement with customers".

TMV reckons growth will not return to UK SITS until 2013 but even then it will not be particularly meaningful at 0.2 per cent. "Market growth in real terms will remain below that of UK GDP for the foreseeable future – indeed probably indefinitely." ®

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