Business Services Spending To Drive Recovery With 12% Growth By 2016

Cebr’s new Prospects Service business services publication, Business-to-Business (B2B) Insights[1], released recently forecasts that spending on business services will rise from £390bn in 2011 to £436bn in 2016 – a 12% increase in real terms. Overall growth in business services spending is led by a general outsourcing trend, particularly of Information and Communication Technology (ICT) and management activities.

ICT services is set to be the star-performer as businesses outsource computing power, storage, business support and bespoke software development in a move to reduce overheads and capital costs. Business turnover in ICT services is expected to increase from £81.4bn in 2011 to £92.5bn in 2016, representing 13.6% growth over this period. Management activities and consultancy services, a smaller sector than ICT, which provides assistance to businesses via organisational, financial and HR planning, is expected to grow even faster by 19.1% between 2011 and 2016.

There is a mixed picture for Legal and Accounting services, as impending regulatory and structural reforms in the financial sector will mean subdued levels of M&A and commercial property activity. We anticipate growth in turnover of 10.6% between 2011 and 2016 for these sectors. Turnover in Advertising and market research services are expected to see spending growth of 11.6% between 2011 and 2016 as retailers and manufacturers see modest levels of advertising spend as discretionary marketing budgets remain under pressure.

However, the business services-led recovery could be stymied by an economic collapse in the euro area, which makes up half of the UK’s export market. In Cebr’s latest Global prospects publication, to be released next week, Cebr looked at a risk case where annual growth in Eurozone GDP is weakened significantly – causing a recession in the Eurozone. This could lead to a knock-on decrease of around 1% in UK GDP – slashing business spending by 1% as reduced trade and investment impacts domestic demand and business confidence.

Douglas McWilliams, Cebr Chief Executive points out “B2B is one of the UK’s most important sectors and our forecasts make it the star performer of the UK economy over the next five years. Because the sector is so diverse, its importance is often not fully recognised. This is probably the most important sector for UK economic growth in the near term and its ambitions should be facilitated.”

A total of £6.5 billion in business services turnover could be lost due to a recession in the Eurozone, costing 70,000 jobs. Of these, 9,000 jobs would be respectively lost in the both the ICT sector and the Legal & Accounting sector. Furthermore, a total of 44,000 jobs would be lost from a host of other business services activities such as real estate services, business support activities, architectural and engineering activities.
“Demand for business services is expected to grow healthily as UK retailers and manufacturers in particular, look to streamline their business models in today’s tough climate,” says Rob Harbron, Cebr economist and main author of the B2B report. “However, a deep recession in the Eurozone is not good for UK exporters nor the business service firms which are reliant on their success.”