Brexit and energy prices pressure UK data centre market

Soaring energy prices and Brexit have impacted the UK data centre market, according to a new report by Information Services Group (ISG).

ISG’s research into the private and hybrid cloud data centre outsourcing industry found that the UK has lost its broad market access to other EU member states due to Brexit. Meanwhile, the Russia-Ukraine conflict has caused sharp spikes in energy prices, forcing service providers to seek other ways to alleviate their rising operational expenditures.

Brexit affects data centre market competition

ISG reported that Brexit has negatively impacted the UK’s digital competitiveness and broad market access with EU member states.

“Data centres in the UK are struggling to offer services at the same price as they did before Brexit. A number of them have sought to renegotiate their contracts with end users in an effort to pass on some of these additional costs,” said Ola Chowning, ISG Partner for North Europe.

In anticipation of the ensuing market access loss due to Brexit, companies from various sectors migrated to other EU member states, negatively impacting the UK’s digital competitiveness. The 2022 IMD Digital Competitiveness Ranking dropped the UK by two positions from 14th to 16th place.

Yet, many firms continue to co-locate near London’s financial trading hubs to minimise latency due to the city’s high-speed broadband internet penetration. The EU’s approval of adequacy decisions for EU GDPR until June 2025 will ensure a continuous data flow between EU member states and the UK.

“Enterprises in the UK are seeking transformation solutions that reduce operational expenditures while improving their sustainability and compliance with government regulations. Service providers are constantly innovating to address these needs and more,” said Jan Erik Aase, Partner and Global Leader at ISG Provider Lens Research.

Energy prices spurs data centre consolidation

The cost per kWh of electricity rose from around £0.20 in January 2021 to over £0.51 by July 2022.

Rising energy prices, partly caused by the Russia-Ukraine conflict, has reportedly resulted in the consolidation of data centres in the UK. Other data centres have nearshored to Dublin, according to ISG.

In response to market volatility and to save on costs, several regional enterprises have transitioned away from established service providers to smaller specialists for their cloud transformation needs.

Service providers are constantly innovating to address these increasing and accelerating needs. Automated IT operations is expected to be a cost-effective equaliser. They have the potential to level the playing field between large, established providers and smaller, regional ones.

ISG also identified a number of trends for the private and hybrid cloud data centre market, including acquisition of new capabilities, edge computing and cloud orchestration, ESG initiatives, and continued focus on FinOps.

Despite the challenges brought by Brexit, the COVID-19 pandemic, and international unrest, the UK’s IT market is forecast to continue growing.

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