Brexit slows growth as UK consulting market hits £8 billion mark

04 March 2019 7 min. read
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The UK consulting market has grown to a size of £8.2 billion, following annual revenue growth of 5.6% in 2018. While the industry is continuing to reap the fruits of Brexit anxieties in the wider economy, growth in the sector is slowing, and even the biggest firms could soon be faced with clients looking to scale back their consulting spending to mitigate economic issues in the post-EU market.

It has long ceased to be controversial to say that, in many respects, Britain’s protracted withdrawal from the European Union has proven to be something of a cash-cow for the professional services world. Since the shock vote to leave the EU rocked the political and business establishments in the summer of 2016, scarcely a month has passed without a new shock headline emerging in the British press, regarding the spiralling total of the UK Government’s consulting bill, while it scrambles to paper over the cracks of an understaffed Civil Service suddenly put under immense strain by the huge workload presented by Brexit. 

At the same time, consultants have been in heavy demand from clients looking to soften the blow of Britain’s secession from the remaining bloc of 27. The financial sector, which represents the UK consulting industry’s biggest customer, has been especially concerned about the impact that the impending major geo-political change will have on their ease of access to global markets from British shores, and external experts have routinely been tasked by these clients with planning for a worst case scenario in the coming months.

UK consulting market annual revenues (£ billion)

Despite this large workload boosting business for consultancies across the country on one front, the Brexit boom may be masking another more long-term reckoning which the UK’s consulting market will soon face, however. According to a new study by Source Global Research, the management consulting industry in Britain saw growth slow by 0.5% over 2018, as the sector’s revenues breached the £8 billion mark. While this does indeed sound like positive progress for the consulting industry, the margin at which it has expanded in the UK has consistently narrowed each year since 2014, according to figures from the same organisation.

It must be noted that compared to other research firms, Source estimates the consulting market of the UK to be a significantly different size. Its analysis of the market has historically always referred to what its analysts call the “big consulting” market, focusing on consulting work conducted by mid-to-large-sized consulting firms (those with more than 50 consultants), which typically includes work that firms have carried out for mid-and-large-sized clients.

This means that the actual total industry is, in fact, worth a good deal more. The Management Consulting Association’s data estimated the industry to be worth £10 billion, while others have even broader definitions and research models, assessing the market to be larger still. ALM for instance believes the UK & Ireland consulting industry is worth over $23 billion. Be that as it may, Source’s latest figures do point toward a trend among the industry’s largest inhabitants which may well cause a few sleepless nights in the coming months; beyond Brexit-related issues, clients seem to be preparing to scale back their consulting spending.

Commenting on the reduced levels of growth the UK consulting saw in 2018, Zoë Stumpf, Head of Market Trends at Source Global Research, said, “Brexit, inevitably, is one of the reasons for this mixed experience in the market. This is partly because on-going 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.”

Financial slowdown hits Big Four

This by no means constitutes a new state of play, with growth having slowed far more noticeably in 2016 – amid the initial shockwaves of the EU referendum – and 2017, during a turbulent first year of negotiations between the EU and UK. However, what will be especially worrying for consultants now is that – with less than four weeks until the deadline for Brexit arrives – there is still no sign of a deal in sight.

Despite repeated warnings, many clients still find themselves in wait-and-see mode with regards to what manner of Brexit the future holds, and should a No Deal scenario be realised, the consulting industry will know all too well that many will seek to tighten their belts – putting off projects that they would otherwise have hired consultants to help see through. The financial services market in 2018 shows how this might translate over the coming months.

UK consulting industry growth vs. Big Four (£ billion)

Although the consulting revenues relating to the financial sector grew 5.3% to hit £2.6 billion in 2018, this was a decrease from the 6.9% growth experienced in 2017. Smaller client budgets and the lessened appeal of large-scale regulatory work following MiFID II and GDPR deadlines also had an effect, but with such a cloud of uncertainty hovering over the sector relating to Brexit, it is unsurprising that the growth of some consulting budgets has slowed. This seems to have had a particularly large knock-on effect on the Big Four, as a result of the manner in which they dominate such markets.

Interestingly, last year Source predicted that the Big Four’s consultancy services would likely benefit from Brexit, with 82% of 440 senior clients of consulting firms informing the research firm that they expected to turn to these firms for answers to their Brexit worries. To an extent, PwC, KPMGEY and Deloitte did enjoy a bumper 2018, but the largest professional services firms in the world were part of a group which Source found scarcely expanded faster than the general market. So-called 'Type A' firms saw a much larger drop in revenue growth, falling from 7.3% in 2017 to 6% in 2018. They now command combined revenues of £3.23 billion.

Stumpf explained, “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.”

While the Brexit gravy train shows no sign of stopping, this trend is no doubt something of a conundrum for the UK’s largest consulting firms, then. At the end of February, it was reported by the BBC that the Government has agreed contracts worth £104 million for outside help on Brexit, with the most valuable Brexit contracts being hoovered up by the likes of Boston Consulting Group, PwC and Deloitte, according to the broadcaster's analysis. The question for firms like this, though, is what the future holds for their growth when the dust finally settles from the mad rush to prepare for Britain's European exodus.