Unlocking Strategic Opportunities: Navigating UK's Economic Outlook in a Slowing Marketing Budget Growth
Despite economic uncertainty, UK marketing budget growth remains steady as companies shift focus to main media investments and reduce sales promotion spend, reveals IPA Bellwether report
Total marketing budgets across all channels experienced a net increase of 5.3% in the third quarter, which may initially seem optimistic. However, when compared to the 6.4% increase in the second quarter, this growth appears less favorable. In fact, the most recent quarter showed the slowest level of budget growth since the fourth quarter of 2022.
On the other hand, the growth in spending was primarily driven by "main media," which are channels commonly used for brand building. A significant 7.4% of companies reported upward revisions in their main media budgets, indicating the strongest growth in this category in the past year and a half.
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This stands in stark contrast to the growth seen in the second quarter, where spending on sales promotions reached an all-time high. In the latest quarter, a larger number of marketers reduced their sales promotion budgets rather than increasing them, resulting in a net balance of -1.5%.
Principal economist Joe Hayes from S&P Global Market Intelligence views this as a reason to be optimistic.
Gloomy outlook
Last quarter, firms expressed concerns about the enduring cost-of-living crisis, leading to a significant increase in spending on sales promotions. However, in the latest quarter, firms have shifted their focus back to brand-building. Anecdotal evidence suggests that this strategic shift has been driven by both defensive and offensive considerations. As demand conditions become more challenging, companies will need to establish a strong positioning to stand out from their competitors.In the future, Bellwether co-authors S&P Global predict that UK ad spend will decrease by 0.6% in 2023 and by 0.4% in 2024. This anticipated decline is due to a downgrade in expectations for overall economic growth in the UK next year. Previously, it was projected that the economy would experience slight growth of 0.4% in 2024; however, it is now expected to decline by 0.1% in the coming year.
This outlook is more negative compared to other forecasts, such as the one from the British Chambers of Commerce, which predicts that the UK economy will sustain modest growth of 0.3% in 2024, down from the 0.4% level in 2024.
There is a greater sense of optimism among marketers regarding the outlook for their own business, with a net balance of 5.2% expressing a feeling of being in a stronger position compared to three months ago.
Media channel spending
In the current quarter, direct marketing recorded a positive balance of 4.3%. This indicated a decrease in growth compared to the second quarter, where investment rates reached their highest level since 2006 with a net balance of 7.3% of companies increasing budgets.
On the other hand, market research budgets experienced another quarter of more companies decreasing their budgets rather than increasing. The net balance in the third quarter was -1.5%, an improvement from the previous period where it was -2.9%.
Online advertising budgets experienced the highest growth within the main media, as 9.1% of companies increased their spending on this channel. Video and published brand advertising also saw growth, although more modestly, with net balances of 0.9% and 0.8% respectively. While video's growth rate was slower compared to the previous quarter (3.2% net balance), it has been consistently growing for nearly three years.
On the other hand, audio and out-of-home advertising both experienced declines, with net balances of 10.8% and 12.1% respectively.
