UK consulting industry to grow again after year of contraction

The government is expected to crack down on its use of consultants this year, but that will not prevent Britain’s consulting industry from growing again after a “challenging” 2024.

Revenues across all consulting firms are expected to rise by 5 per cent to £15.7 billion in 2025, according to a new report from Source Global Research, a firm that focuses on the professional services industry.

If that prediction proves correct, 2025 will still pale in comparison with the years immediately following the pandemic. In 2021 Britain’s consulting industry grew by 13 per cent and then by another 15 per cent in 2022 as companies splashed out on help and advice to get them ready for post-Covid trading.

Nevertheless, a return to growth in 2025 will be welcomed by the thousands of consultants across the country, who saw demand for their services start to dry up last year as global elections, wars and lingering economic uncertainty prompted clients to rein in their spending.

In 2024 Source estimates that the UK consulting industry contracted by 3.4 per cent, the first time it had shrunk since the pandemic. A number of the big consulting firms, having over-hired during the post-lockdown boom, have sought to lay people off over the past 18 months.

Businesses from all sectors scaled back their spending on advice but retailers were particularly frugal, given falling consumer confidence and the looming prospect of a much higher national insurance bill.

Almost every industry will increase their use of consultants in 2025, Source said, and pharmaceuticals and healthcare companies were likely to see the biggest increases.

Nick Jotischky, head of market trends at Source, said technology investments were likely to drive much of this expansion as businesses seek help with how to use artificial intelligence. Pharma companies, for example, want to bring in new technologies to help them to “gain insights from client data to accelerate drug discovery and improve manufacturing processes”.

A survey conducted by Source found that almost three quarters of companies plan to spend between 20 and 40 per cent of their total investment budget on implementing AI technology. Demand for help with cybersecurity is also expected to rise this year.

The only part of the market where demand is expected to fall is the public sector as Labour starts its crackdown on departments’ use of consultancies. The government has made clear that it wants to “cut unnecessary spending and save £1.2 billion by 2026”. Source expects consulting firms’ income from the public sector to decline by 2 per cent this year.

“Although we’re expecting a contraction in public sector spend on consulting this year, from analysing this sector through successive governments, we know that when those in the public sector need to get something done, but lack the skills or capacity to deliver, then they’ll use outside contractors to do that,” Jotischky said.

Source’s report also showed which firms have been busiest over the past 12 months. IBM topped the table once again, with 23 per cent of companies polled saying they used the American technology group’s teams at some point in 2024. KPMG has crept up into second spot, followed by Deloitte.

McKinsey, a stalwart of the industry, seems to have rediscovered its appeal with clients. Source’s survey found that 15 per cent of companies hired McKinsey consultants in 2024, up from only 5 per cent in 2023.

Smaller firms, such as TCS, Wipro, Roland Berger and PA Consulting, also improved their share of the market “as companies increasingly engage with firms on smaller pieces of work”.