- Growth rate almost halves since 2016 EU Referendum
- Central government upheaval delays decision making around new initiatives
- Regulatory-driven work in financial services is no longer a cash cow for UK consultants...
UK consulting market growth has almost halved since the 2016 EU Referendum, a new report from Source Global Research finds today. Growth has slowed from an impressive 7.5% in 2016 to just 4% in 2019, with the market now worth £8.6bn. This is the slowest growth recorded in the UK consulting market in seven years.
Growth was slow in the very largest consulting markets—financial services and the public sector—with both sectors facing challenging times in 2019. The volume of public sector consulting work barely grew in 2019 (up only 1% compared to 4.5% growth in 2018) as prolonged central government upheaval caused countless delays to decision making around new initiatives. However, Source forecasts that public sector growth will climb to 4% in 2020, as clients seek support with both the implementation of a variety of already-announced reforms, and in-depth Brexit-readiness.
At the same time, consulting growth in the giant financial services market has slowed considerably: The sector recorded an increase of almost 7% in 2017, whereas it only grew by 4.1% in 2019. Regulatory work—for so long a cornerstone of the consulting market for many firms in the UK—is on the wane, as clients start to automate regulatory solutions and use in-house resources to do the work that’s needed. However, even outside of regulatory work, consultants are finding the sector challenging, as squeezed margins amongst clients are putting pressure on consulting budgets.
Apprehension surrounding the economic and political landscape is also having a significant impact: 91% of clients in the UK said that it had impacted their use of consulting services last year, and the same percentage expect it will continue to do so over the next 1-2 years. In response, 60% of clients expect consulting firms to reduce their fee rates, and a similar number (59%) said they’d make greater use of outcomes-based contracts. Over a third (41%) said they’d use fewer consulting firms as a result.
Despite this, there were still some hot spots of growth in 2019 for consultants, particularly around digital work, which continues to play a key role in pretty much every change that clients are implementing. This includes:
Zoë Stumpf, Head of Consulting Market Trends at Source Global Research, said:
- Data & analytics work grows faster than the market – up 15.7% – This is a huge area of opportunity for consultants, particularly as, according to the research, it’s a part of the market where consultants can command higher fee rates.
- Cybersecurity work up almost 13% in 2019 — Although it makes up a relatively small share of the market, cybersecurity is growing much faster than the market as a whole, and with skills scarce, and the price of lack of preparedness very high, continued growth in demand is almost guaranteed.
“After a frustrating year for UK consultants, firms now need to move quickly to seize the market’s short-term opportunities. At face value, the UK consulting market looks set to bounce back from the paralysis that affected some parts of the market in 2019. Hoping that the country will now, as Boris Johnson has announced, “get Brexit done”, there’s a willingness to invest, and to do so quickly, especially in areas where digital technology can transform productivity and cut costs.”
Sustainability and purpose
The Source Global Research report also found that there has been a huge uptick of interest in the topic of sustainability in the last 12 months, with clients across the board keen to think about the bigger picture, and what it means for their organisations. This greater focus on sustainability isn’t only affecting clients however, as many consulting firms are taking the topic very seriously, and using this to help define which clients they work with, how they grow, and how they impact society as a whole. This is a major change of direction for many consulting firms previously solely focused on partner revenues.
Zoë Stumpf at Source added:
“Sustainability is a deeply specialist area, with demand for help ranging from sustainability audits to helping clients manage sustainability across their entire supply chain. We expect demand to really take hold and start generating solid revenues in 2020, and consulting firms need to be ready for this wave of work—and indeed make sure that they are in a position to challenge and educate clients.”
Growth in 2020-21
2020 is expected to be similar to 2019 in terms of growth (forecast at 4%). There should be some benefit to the consulting market from last-minute Brexit changes, though this may be more of a factor in 2021, once final agreements have been struck between the UK and the EU.
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