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The UK consultancy market will fail to grow this year for the first time since 2020 as fears over the economy’s resilience, looming elections and geopolitical tensions push firms to spend less on business consultancy.
The retail, telecoms, pharmaceutical and manufacturing sectors are expected to cut spending on consultancy, putting pressure on a nearly £16 billion market that has boomed in the two years since the pandemic as management teams they turned to external consultants to deal with the crisis.
The forecast comes from an annual consultancy market report by Source Global Research, which includes input from the Big Four of Deloitte, EY, KPMG and PwC and is considered a benchmark for the industry.
According to the report, a combination of higher inflation and geopolitical uncertainty had already hit the market last year, with growth slowing to 4.7% from 15.6% in 2022. Businesses, it said, last year had to face a “polycrisis”.
“This has created huge levels of trepidation in clients, resulting in hesitancy in seeking to tender new consultancy contracts,” the report finds.
While UK inflation was at 4% in January, well below the more than four-decade high of 11.1% reached in October 2022, it will not be enough to encourage firms to write bigger checks for consultancy strategic, Source Global predicts.
“With clients continuing to take a wait-and-see approach to understanding where to act if the economy begins to recover, we expect similar levels of hesitancy in 2024, particularly with the upcoming general election complicating public sector spending,” says the relationship.
The negative forecasts underline the challenges facing the big four companies that dominate the market. In recent months they have cut hundreds of jobs and, in some cases, frozen wages.
With the exception of 2020, when the consulting market contracted due to repeated lockdowns, Source Global expects this year to be the worst since it began tracking the market in 2014.
“We expect growth to slow across all sectors this year – and in some cases, dramatically,” said James Beeby, head of research at Source Global.
“The market is therefore set to become smaller and more competitive, and this will make it even more important for consultancies to demonstrate where value is added.”
Consulting firms advise companies on a wide range of issues, acquisitions, technology and ESG. Below the Big Four, there is a group of mid-sized companies that includes Grant Thornton and Oliver Wyman.
The financial services sector accounted for £5.86 billion of the market last year, according to the report. Cyber security work, meanwhile, was the fastest growing line of business, rising more than 17% from 2022 to £1.7bn. A series of high-profile cyber attacks has prompted more companies to increase spending in areas such as incident response consultancy.
Public sector contracts accounted for £1.89 billion of the market in 2023, up 14% on the previous year, the report said, but warned that election uncertainty would likely slow growth.
Prime Minister Rishi Sunak last week ruled out going to the polls in May and had previously said his working assumption was that he would hold an election in the second half of the year.
A separate survey of consultants published by the Management Consultancies Association in January estimated activity in the UK market will rise 9% this year, down from 11% in 2023.