Q4 IPA Bellwether Report reveals renewed signs of optimism among UK advertisers

The Q4 IPA Bellwether Report, published today, shows signs of optimism for UK marketing expenditure during the final quarter of 2019. The data shows modest growth for the first time since the start of 2019, following two quarters of stagnant spending activity.

A net balance of +4 per cent of surveyed firms revised their total marketing budgets higher in the fourth quarter (up from -0.5 per cent in the third quarter). This was the strongest expansion since the start of last year. Approximately 23 per cent of companies observed budget growth, while around 19 per cent reported cuts, leaving the remaining 58 per cent with an unchanged spending allocation.

The breakdown by category showed that internet retained its status as top performer, with a net balance of +7.9 per cent, compared to +11.1 per cent in Q3, while there was a fractional upward revision to main media advertising (+0.5 per cent from 0 per cent in Q3).

All remaining segments recorded spending cuts, led by market research for a second successive quarter (-13.2 per cent, compared to -16.9 per cent in Q3); direct marketing (-7.7 per cent compared to -7 per cent in Q3); PR (-7.1 per cent compared to -4.7 per cent in Q3); sales promotions (-3 per cent compared to -2.3 per cent in Q3); and events (-1.1 per cent, compared to -5.9 per cent in Q3).

According to the report, the preliminary outlook for marketing spending in the 2020/21 budgeting year appears promising. A net balance of +15.7 per cent of companies expect their total marketing budgets to be upwardly revised, a significant improvement from the 2019/20 forecast of +3.4 per cent.

While a number of panellists continues to express concern towards the outcome of Brexit, others expect to see a bounce in business following the General Election and the subsequent alleviation of political uncertainty. A number of companies revealed extra motivation to release additional resources for marketing.

Events marketing is expected to be the strongest area, with a net balance of +11.9 per cent anticipating growth, while main media is also forecast to see moderate gains, posting a net balance of +6.3 per cent. Lastly, the final marketing segment predicted to see growth in the coming financial year is sales promotions, with a net balance of +2 per cent.

A neutral outlook has been provisionally recorded for both direct marketing and PR (net balance of 0 per cent), whereas market research and the “other” marketing activity category registered in negative territory, both on -5.7 per cent.

Trends between industry-wide and company-own financial prospects diverged in the final quarter, with the latter moving into positive territory during the latest Bellwether survey.

As has been the case since the end of 2014, panellists were pessimistic towards the financial prospects in their own industry. This was signalled by a negative net balance of -21.0 per cent, reflecting a stubbornly elevated degree of pessimism. Nonetheless, this was a marginal movement upwards since the third quarter of 2019, where the net balance stood at -25.0 per cent. Overall, over one-third (33.7 per cent) of businesses felt downbeat, while 12.7 per cent of surveyed firms reported an optimistic view.

In contrast, own-company financial prospects improved noticeably in the final quarter of 2019, with a net balance of +1.0 per cent of firms anticipating growth in their business. This was the first time since the third quarter of 2018 that Bellwether panellists have been optimistic overall, and a notable upswing from the previous quarter, where a net balance of -9.4 per cent of companies were downbeat on their financial prospects.

Looking towards the coming year, Bellwether believes that conditions for marketing spend have become notably more favourable. Robust preliminary budget plans for the 2020/21 period reinforce this view. A key hindrance for the UK in recent times has been the lack of a government with a working majority. With this layer of uncertainty now removed following the General Election, panel comments suggest that businesses have become more inclined to invest and spend. As such, Bellwether predicts 2020 will be a stronger year than 2019, and forecasts annual ad spend growth of 1.8 per cent.

There also appears to be a strong likelihood that the business cycle will kick on beyond 2020. As such, Bellwethers anticipate ad spend growth to improve to 2 per cent in 2021 (and beyond (2.2 per cent for 2022 and 3.1 per cent for 2023).

“This latest IPA Bellwether Report demonstrates the extent to which UK marketing budget planning has been at the mercy of the unstable political environment,” said Paul Bainsfair, director general of the IPA. “Over the past year, we have seen a stagnation in marketing budgets, culminating in a below zero score last quarter. And yet now, with the clear result of December’s General Election, we are seeing a return to positivity in terms of UK companies’ confidence regarding their own financial prospects and in terms of their budgeting plans – up marginally this quarter and significantly for 2020/21. With Brexit still looming, I’m sure it won’t be plain sailing, but these forecasts provide an upbeat outlook for the year ahead for UK plc, their marketers and of course the agencies that work with them to grow their businesses.”

Joe Hayes, economist at IHS Markit, who authored the author of the Bellwether Report, said there were a number of positives to take from it. “The rise in total marketing budgets provides tentative signs of a momentum shift, particularly when coupled with preliminary data for the 2020/21 budget year,” he said. “It appears that firms are looking to release the pent-up investment which has been put on hold amid the high degree of political and economic uncertainty which has plagued the UK business climate for well over 12 months now.

“Nevertheless, while these positive developments will perk up enthusiasm for marketing budgets in the coming year, downside risks to the outlook remain at large, particularly if a business cycle recovery does not fully materialise and Brexit uncertainty descends again.”

The Bellwether Report is researched and published by IHS Markit on behalf of the Institute of Practitioners in Advertising. It features original data, drawn from a panel of around 300 UK marketing professionals, which has been selected to represent all key business sectors, drawn primarily from the nation’s top 1,000 companies.