Q1 2022 UK ad spend up 28 per cent year-on-year but set to contract in real terms in 2023

The latest Advertising Association/WARC Expenditure Report shows a strong Q1 for UK ad spend with a year-on-year rise of 28.3 per cent, reaching a total of £8.6bn and resulting in slightly improved outlooks for the year ahead. The first three months of 2022 outperformed expectations by 7.7 percentage points (pp), as all media recovered in comparison to the lockdowns of Q1 2021.

The outlook for the total UK advertising market in 2022 has been upgraded by 0.2pp to 10.9 per cent growth, by when ad spend is set to reach a new high of £35.4bn. These figures also reflect the consistent growth of online advertising, which is forecast to account for 74.3 per cent of all spend this year, in comparison to 73.5 per cent in 2021.

Despite encouraging growth across most sectors, real growth in the UK’s ad market is expected to be just 1.8 per cent this year when accounting for inflation. Erosion of margins due to increased costs may affect marketing budgets, with inflationary pressures likely to continue into 2023.

The report suggests the UKs ad market will grow by a further 4.4 per cent in 2023, to a value of £37bn. This represents a 1.0pp downgrade from AA/WARC’s April forecast, and equates to a 0.9 per cent contraction in real terms. With inflationary pressures and issues faced by all businesses and families such as the rising cost of living – coupled with geopolitical uncertainties – the UK advertising market is liable to see further headwinds on the horizon.

Year-on-year growth was recorded across all media in Q1 2022. Online formats – notably search, display (including social) and classified – grew the most in absolute terms. Search was up 29.9 per cent; display by 27.6 per cent; and classified by 29.9 per cent. Out of home (OOH) also posted strong growth of 146.2 per cent, with Digital OOH up by 142.8 per cent. It should be noted, however, that during Q1 2021 lockdown measures were still in place across the UK, hitting OOH revenues badly.

“The latest survey data show that the UK’s ad market is currently experiencing a soft landing from the turmoil caused by the Covid outbreak, with early budget commitments translating into a strong start to the year for the industry – all media recorded growth in the first quarter,” said James McDonald, Director of Data, Intelligence & Forecasting at WARC. “As predicted, however, inflation is now starting to bite; its impact on the consumer is well documented, but the rising cost of servicing government debt leaves the incoming prime minister with less fiscal flex for stimulating flatlining economic activity. For advertisers, higher costs will carve into margins, and while a real term rise of 1.8 per cent in ad investment is expected this year – compared to a pre-Covid average of +2.6 per cent – the market is now set to contract in 2023 after accounting for these ongoing inflationary pressures.”