UK consultancy market growth impacted by Brexit uncertainty

Brexit has impacted the 2018 growth percentages of UK consulting firms, Source Global Research has revealed.

At first glance, growth in the UK consulting market could be taken as positive, with the 2018 increase being reported at 5.6% (£8.2bn). In 2017, growth rates were at 6.1%, and in 2016 they were recorded at 7.5%, thus showing that growth is on the decline.

Source Global Research stated: “Revenues from Type A firms, which are dominated by the Big Four, were down from 7.3% in 2017 to a growth of 6% to £3.2bn in 2018.”

Nonetheless, despite this widespread slowing of growth in the UK consultancy market last year, some firms have reported “a bumper year”, Source Global Research have emphasised. In comparison, those who are finding growth to be an issue, have pinpointed “ongoing uncertainty” surrounding Brexit negotiations to be the reason for increased delays to their larger programmes.

“Brexit, inevitably, is one of the reasons for this mixed experience in the market,” said Zoë Stumpf, head of market trends at Source Global Research. “This is partly because ongoing uncertainty has caused some clients to delay large programmes, and partly because some are feeling the heat from falling exports, declining foreign investment, and inflation.”

From their research, Source Global Research surmised the following:

• Manufacturing growth: in 2018, this proved to be one of the fastest-growing sectors of the year. Growth rates were reported to be up by 7.1%, reaching just over £1bn. Source Global Research has revealed that this was in response to clients needing increased aid to deal with Brexit disruption and “Donald Trump’s protectionist stance [threatening] exports.”
• Sectors that outperformed 2017 growth rates: the likes of the consultancy in the public sector was up by 4.5%, energy & resources (5.7%), and retail (7.6%).
• Financial services market slowed: although the growth rate was reported to be up by 5.3% (£2.6bn) in 2018, this has fallen from the 6.9% growth in 2017. Smaller client budgets and the lessened appeal of large-scale regulatory work following MiFID II and GDPR deadlines have had an effect.

“The report also found that, from a consulting service line perspective, Brexit uncertainty was a great driver of operational improvement work as clients looked to reduce costs and simplify internal processes,” Source Global Research continued. “Operational improvement work grew 6% to £1.6bn, and work in 2019 in this service line is forecast to rapidly increase, with an 11% growth rate expected.”

It might be surprising that Big Four firms also suffered in this area, despite the way in which they dominate such markets.

Stumpf said: “There are a few reasons why Type A firms, largely dominated by the Big Four, barely managed to grow faster than the market. Slowing growth in financial services – the traditional heartland of these players – was a factor, as was a loss of client appetite for very large transformational programmes. However, widespread convergence in the market also means that they are competing with virtually every other firm type, and this is impacting margins.”

One way in which the consultancy sector is rapidly evolving is through digital solutions. Source Global Research has stated that clients are continuing to invest in this area—to the extent that digital work now accounts for almost half of all consulting revenues in the UK.

Despite the pressures but on the market as the Brexit looms closer, investments into using digital means to address customer needs more effectively continue.

Stumpf concluded: “We share the view of consultants that growth is likely to be reasonably positive in 2019, but we do have concerns for the health of the UK market in the longer term, given that Brexit has the potential to have a further negative impact on the economy, and that clients could be so busy dealing with the fallout that they may lack the energy for wider – and demand-generating – transformation work.”