UK Firms Reduce Consulting Spend as AI Adoption Surges

UK Firms Reduce Consulting Spend as AI Adoption Surges

British businesses are paring back their spending on consulting firms as they turn to artificial intelligence for problem solving, according to data from City AM's new Business Spend Pulse.

Median spending on consulting fees fell by 1.9 per cent in August compared to the same period last year, despite an overall 2.2 per cent increase in corporate expenditure. The pull back coincides with a near doubling in the number of businesses adopting AI technology. One in seven companies now spends money on AI firms such as Anthropic and ElevenLabs, up from one in thirteen a year ago.

Overall spending on professional services fell by around a tenth as a share of total corporate spend. Meanwhile, the proportion of companies paying professional services providers dropped by approximately one percentage point to 18.6 per cent. That represents the steepest decline across any spending category, reflecting the operational headwinds currently facing advisory firms in the City.

The tracker relies on data shared exclusively with City AM by Capital on Tap, a fintech provider of business credit cards and spend management tools for small and medium enterprises. The findings analyze millions of card transactions across more than 300,000 UK businesses.

Beyond advisory services, the pulse showed an increase in spending on equipment, tools, and hardware as a proportion of total expenditure. Commercial spending on electric vehicle charging also rose 20 per cent, driven by companies electrifying their commercial fleets to offset fuel price volatility.

"August is typically one of the quieter months of the year, with many owners taking a summer break, yet businesses still spent a little more than they did a year ago, and they are putting that money into the tools that make them more productive," said Capital on Tap chief executive Damian Brychcy.

"With the autumn Budget approaching, many will be weighing what it means for their costs. The way they are investing in technology, even in an uncertain climate, says a great deal about their determination to grow."

Regional Adoption Trends and Advisory Retrenchment London recorded the highest level of AI adoption across the country, with around one in five businesses paying for services from leading AI developers. Milton Keynes followed at 16.3 per cent, with Edinburgh at 16.1 per cent and Bristol at 15.7 per cent.

The shifts in corporate spending coincide with headcount reductions across London advisory practices responding to softer demand. In July, Big Four firm KPMG drew up plans to cut around a tenth of its UK group corporate services team. Smaller advisory firms have faced similar pressures, with consultancy Savannah entering insolvency following financial difficulties.

Source: City A.M.