Technology Contract Market Weakens as AI Reshapes Specialist Demand

SThree reported a 17 per cent fall in UK net fees and a 14 per cent decline across its global technology business, while clients redirected spending towards data, cyber and transformation skills.

A trading update from STEM recruitment specialist SThree provided one of the clearest March indicators of the pressure facing technology contractors.

For the three months ending 28 February, group net fees fell 8 per cent year on year to £71.7 million. Contract work generated 83 per cent of fees but declined 10 per cent to £59.8 million, while permanent placement fees remained flat at £11.9 million.

The United Kingdom was among the weaker markets. Net fees fell 17 per cent to £5.8 million, compared with a 28 per cent fall in the Netherlands and an 11 per cent reduction in Germany. The United States increased 8 per cent to £19.5 million and Japan rose 57 per cent to £3.3 million.

Technology carried the steepest skills decline

Technology accounted for 44 per cent of SThree’s net fees, making its performance especially relevant to IT professionals. Fees in the vertical fell 14 per cent year on year as the company reported soft demand, particularly in Germany and the Netherlands.

Engineering fees declined 5 per cent, although energy increased 8 per cent, while life sciences fell 10 per cent. SThree’s contractor order book stood at £152 million, 7 per cent lower than a year earlier, but still represented approximately five months of net fee visibility.

The figures did not describe the entire British contract market, and SThree’s operations cover eleven countries. They nevertheless offered a useful measure of large client demand for specialist STEM workers at a time when many contractors reported longer gaps between assignments.

Chief executive Timo Lehne said trading took place against “ongoing macroeconomic volatility, including geopolitical uncertainty and rapid technological change”.

Artificial intelligence changed the mix of work

Contemporary financial reporting said artificial intelligence was slowing demand in parts of the software market while supporting stronger interest in data, cybersecurity, transformation and project management.

That distinction mattered. Artificial intelligence was not simply eliminating contractor work; it was altering the work organisations were prepared to fund. General development and maintenance assignments faced tighter scrutiny as clients examined whether automation could reduce headcount or delivery time. At the same time, introducing AI created demand for secure data foundations, integration, governance, testing and organisational change.

SThree said clients increasingly wanted partners able to manage complex workforce solutions, a shift intensified by AI. The company highlighted the resilience of its Employed Contractor Model as organisations preferred scalable, managed arrangements over purely transactional hiring.

For independent professionals, that trend contained both opportunity and risk. Businesses still needed scarce expertise, but they were more likely to package it within managed teams, statements of work or consultancy led programmes. Contractors therefore faced the possibility that demand would recover without returning to the same engagement models used before the off payroll reforms.

What contractors could take from the figures

The strongest response was greater specialisation. A contractor who could connect cloud engineering with AI deployment, or cybersecurity with data governance, could address a funded business problem rather than compete only on a broad technical label.

Commercial evidence also mattered. Clients under pressure wanted a clear outcome, delivery plan and measurable benefit. Contractors who could show how earlier work reduced risk, accelerated a migration or improved resilience were better positioned than those presenting a list of technologies without business context.

The update still contained signs of stability. New business activity was broadly consistent with the previous year, contract extensions remained resilient and the group held £51 million of net cash. SThree expected full year performance to remain in line with its guidance.

March therefore delivered a mixed message for IT contractors. The overall technology market remained weak, and UK recruitment fees had fallen sharply. Yet demand had not disappeared. It was concentrating in areas where organisations faced urgent technical complexity, particularly data, cyber, transformation and the safe implementation of AI.