IT spending by banks in the UK will grow at a rate of 5.7% in 2004 - above the Western European banking industry average - and will continue to increase through to 2008, according to research by market intelligence firm IDC.
IDC says IT investment will be concentrated on capital market and back office operations. Packaged software is expected to record the highest growth rates in the next five years, but demand for IT services will remain the backbone of spending.
Pressure to comply with new Financial Services Authority (FSA) regulations and standards will also have an increasing effect on IT investment.
The research also suggests that the capital market recovery around Europe will drive new IT investment by securities and investment firms, which currently account for more than 19% of UK financial services IT spending.
IDC says hardware spending will remain steady in 2004 compared to 2003, but in the long term the value of spending in this sector will increase by about two per cent, with the networking area growing faster.
IT spending in the insurance sector is expected to rise at 4.2% CAGR from 2003–2008, although cost saving will still be imperative for insurance companies in the UK. In the short-term, IT spending growth in the life insurance sector will grow less than in the non-life sector.
According to Mirko Corbetta, research analyst at IDC, UK banking and insurance systems will provide a benchmark for competition in Europe.
"The UK market is surely an attractive place for IT vendors willing to target the financial services sector," says Corbetta.