Ad spending by British companies rose by 2.1 per cent over the course of 2016, following a strong fourth quarter, but advertisers should prepare for budgets to shrink over 2017 as economic uncertainties over Brexit take their toll.
The figures come from the IPA Bellwether report, which is published by IHS Markit on behalf of the Institute of Practitioners in Advertising. The year-end report was revised from its forecast, which had previously estimated growth of 1.9 per cent.
Despite this increase, the firm remained pessimistic about 2017, predicting a 0.7 per cent fall in UK ad spending as companies tighten their belts in preparation for the triggering of Article 50 and the UK's exit from the EU, whatever form it may take.
"With company sales growth being underpinned by firm UK household spending, marketing budgets continued to be driven higher in the fourth quarter of 2016 and a number of companies are seeking to maintain growth, with some taking advantage of the weak pound," said Paul Smith, senior economist at IHS Markit.
"However, with inflation set to rise in the coming months and erode purchasing power, plus the continued uncertainty created by the Brexit vote, it remains to be seen whether momentum can be sustained into the heart of 2017."
According to the report, 12.9 per cent of companies increased their ad budgets during Q4 2016, slightly lower than the 13.4 per cent seen during Q3, which was a nine-quarter high. The firm expects a net balance of 27.6 per cent of companies to grow their budgets over the course of 2017.
"After a year of well-publicised doom and gloom, Bellwether provides some welcome positive news," said Paul Bainfair, director general of the IPA. "With marketers revising their budgets up yet again, the industry ends the year on a high. Furthermore, it is reassuring that despite the slight fall in adspend predicted by Bellwether in 2017 due to Brexit negotiations, growth is forecast for both 2016 and 2018."
The news was greeted with a positive reaction by the mobile marketing industry, which argued that continued growth from the digital sector, largely powered by mobile and video, would help counteract the uncertainty of Brexit.
"The Bellwether Report shows that the digital ad industry is gaining strength in terms of its position and in levels of spend, which is great news for all involved in digital ad trading through display, video and mobile," said Julia Smith, director of communications for digital marketing platform Impact Radius.
"With this increased spend has come a need for higher levels of transparency as there is significantly more at stake now. Moreover, it is unsurprising that with Brexit negotiations continuing, there is a level of uncertainty in the industry. Brands therefore need to be assured that the increased budgets spent on digital media are actually being viewed by real users and that the entire customer journey can be correctly attributed, especially when the complexities of programmatic trading are involved."
"The positive story told by the Q4 Bellwether is a reassuring one and proves that despite these difficult economic and societal times, business and brands are continuing to weather the storm and maintain consumer confidence, albeit with a level of cautious optimism," said Chris Cardew, head of strategy at Mindshare.
"As a whole, it’s been a good quarter for media and marketing. For the majority of the big retailers, such as M&S, Christmas delivered bumper results. This was supported by high profile marketing campaigns and investment, demonstrating their confidence in consumer spend."
These sentiments were echoed by brands and publishers, who called for businesses to stay the course and make sure that they invested in long-term growth, rather than panicking over a temporary blip.
“The Michael Fish moment has been well documented about how wrong the forecasters were about the economy post the referendum decision and it's great to see that the great British public and business have turned a gloomy decision into a positive result," said Dom Carter, chief commercial officer for News UK. "Clearly, there has to be caution as we approach the reality of Brexit and certainly consumer confidence will be impacted but the underlying business performance is still apparent.
"Advertisers need to hold their nerve during this uncertain time and continue to invest in areas that help their brands sustain for the long-term. For those that do, when consumer confidence begins to grow again, they will find a steeper return to growth. This isn't about driving click-throughs and likes but more about reaching highly influential and engaged consumers in trusted, professionally curated media, that will determine our path to continued growth."