Professional Services Propel UK Economic Growth Amid Broader Economic Slowdown

The UK's professional services sector has emerged as a cornerstone of economic growth in 2024, outpacing other industries as the overall economy struggles with stagnation. Despite a broader deceleration, professional services, scientific, and technical activities expanded by 0.7% in the third quarter, contributing significantly to the UK's modest 0.1% GDP growth during the same period.

A Resilient Sector Amid Economic Challenges

Spanning diverse fields such as law, architecture, research and development, and consultancy, the sector has demonstrated remarkable resilience. With a 3.9% growth rate in the nine months leading to September, professional services have outperformed the economy's overall 1.3% growth. This robust performance has been attributed to strong business-to-business and R&D spending, even as consumer demand has faltered.

“Professional services have been the locomotive of UK growth this year,” said Robert Wood, economist at Pantheon Macroeconomics, highlighting its critical role in driving national economic performance.

The sector now contributes over 8% of the UK’s GDP, rivaling the size of the entire manufacturing industry and outpacing other significant sectors such as car production and construction.

Subsector Strengths Drive Expansion

Scientific research and development has led the growth within professional services, but legal activities, a mainstay of the UK economy, have also performed strongly. According to Richard Atkinson, president of the Law Society, the legal industry remains a global leader, benefiting from a skilled international workforce and the global trust in English law for commercial contracts.

The architecture industry has similarly flourished. The Royal Institute of British Architects (RIBA) reported record revenues of £4 billion in the year to May 2024, with overseas revenue climbing by 25% to £1 billion. Adrian Malleson, RIBA’s head of economic research, credited high-quality design and London’s global status as key drivers.

Challenges and Opportunities Ahead

While the sector’s resilience is commendable, challenges loom. Corporate sentiment has declined, and businesses are scaling back investment plans amid higher taxes and political uncertainty. Nevertheless, experts are optimistic about the potential of artificial intelligence and medical technology to sustain growth in professional services.

The Labour government’s focus on public investment and falling interest rates could further benefit the sector. Smaller architectural firms, for instance, are poised to capitalize on increased housing market activity.

IT and Exports Bolster Services Growth

Complementing professional services is the IT sector, which has grown by 5.2% in 2024. Together, these industries have driven a 13% rise in UK services exports since December 2019, offsetting a 24% decline in goods exports.

Emily Fry, senior economist at the Resolution Foundation, emphasized the need for targeted policies to support these high-performing sectors. “These are areas that the UK does well and should be supporting, both through domestic and international policy,” she noted.

Looking Ahead

As professional services continue to “punch above their weight,” they remain a critical pillar of UK economic resilience. While growth may temper in the coming months, the sector’s strength in exports, innovation, and global reputation offers a pathway for sustained economic progress amid broader headwinds.