UK marketing budget growth hits one-year high – Bellwether report

Companies’ total UK marketing budget growth is at its strongest since Q2 2022, despite an intensely challenging economic environment both domestically and globally. This is the key finding of the  Q1 2023 IPA Bellwether Report, published today.

The report shows the net balance of firms registering upward revisions to their marketing budgets in Q1 2023 at +8.2 per cent, considerably higher than the +2.2 per cent recorded in Q4 2022. While 21.1 per cent of firms saw an expansion, 12.9 per cent of firms registered budget cuts and around two-thirds (66 per cent) recorded no change in spending.

Growth by category in Q1 2023
Main media marketing, which includes online advertising activity and budgets for big-ticket campaigns on TV, recorded its strongest expansion in spending since Q1 2022 (net balance of +5.8 per cent, from +4.4 per cent). The breakdown of this category showed continued marked expansions in other online (+10.5 per cent, from +6.3 per cent) and video (+7.9 per cent, from +13.7 per cent), and a renewed upturn in audio (+1.7 per cent, from 0.0 per cent). Published brands (-1.9 per cent, from -3.9 per cent) and out of home (-12.4 per cent, from -8.8 per cent) were, however, drags on main media in Q1.

Sales promotion budgets returned to expansion in Q1 (net balance of +8.8 per cent, from -4 per cent), rising at the strongest pace in nearly two decades as companies dedicated more resources to supporting their customers through the cost-of-living crisis. Another round of budget growth was also seen for events (net balance of +6.3 per cent, from +5.7 per cent) as marketing executives look to re-engage with new and prospective clients face-to-face. Direct marketing spending also rose at the start of the year (net balance of +4.2 per cent, from -0.6 per cent).

The remaining categories all recorded budget cuts, led by other marketing activity not already accounted for (net balance of -5.8 per cent, from -10.1 per cent), although declines eased in each case. A net balance of -0.6 per cent of firms cut their PR budgets (from -1.9 per cent), while a modest reduction was seen in market research spending (net balance of -3.2 per cent, from -8.8 per cent).

Budget plans 2023/24
Finalised data showing Bellwether firms’ expectations towards their marketing budgets for the 2023/24 financial period were strongly positive, in line with the findings from the preliminary estimates collected at the end of last year. More than a third (36.6 per cent) of respondents foresee greater total marketing spend in real terms in the year ahead, compared with 16.9 per cent anticipating cuts. This yielded a strongly positive net balance of +19.8 per cent.

Firms’ appetite to engage in face-to-face marketing activities remained strong. A net balance of +14.5 per cent of companies expect events marketing spend to rise in 2023/24, the greatest level of optimism among the seven categories where budget plans are monitored. Bullish budget setting was also recorded in main media advertising (net balance of +13.5 per cent), suggesting that companies plan to use marketing tools to combat a potential period of economic turbulence.

Sales promotion budgets are also set to rise in 2023/24, while direct marketing was the final monitored category where budget expectations were positive (net balance of +1.4 per cent).

Budgets reserved for PR and other marketing activities are expected to be unchanged in 2023/24 (net balances of 0 per cent), while market research was the only segment where budgets are set to be reduced (net balance of 0.7 per cent).

Amid some recent signs of easing cost pressures, the latest Bellwether report signals a fresh sense of optimism among panellists regarding their own company’s financial prospects. This was indicated by a net balance of +7 per cent of firms that were optimistic towards their business outlook (vs a net balance of -17.2 per cent previously).

Meanwhile at the industry-wide level, Bellwether panel members remained pessimistic towards the financial outlook compared to three months ago. However, while still offsetting the proportion who had grown in confidence (15.7 per cent), 22.8 per cent of companies were downbeat in their assessment (down from 41.8 per cent previously). The resulting net balance of -7.1 per cent signalled the weakest degree of negativity in a year and compared with a reading of -33.2 per cent previously.

Bellwether author, S&P Global’s forecast for the UK economy has been modestly upgraded, with GDP in 2023 expected to decline by -0.2 per cent, instead of the -0.8 per cent anticipated in the last Bellwether Report. However, households continue to face shrinking purchasing power due to high inflation and borrowing costs, which will weigh heavily on the economy. The Bellwether therefore forecasts a small decline of -0.9 per cent (vs. -0.3 per cent previously) in ad spend this year, and a marginal improvement in ad spend next year of 0.5 per cent (1.2 per cent previously), before expected growth to 1.6 per cent, 2.0 per cent and 2.2 per cent in 2025, 2026 and 2027 respectively. 

“This is a positive start to the financial year for marketing budgets, all things considered,” said Paul Bainsfair, IPA Director General. “The overall increase in confidence from UK companies regarding their financial prospects is being reflected in their marketing budget decision making.

“As the cost-of-living crisis continues, it is understandable for companies to offer sales promotions to help their customers’ tightened purse strings. To ensure brand loyalty isn’t eroded and to protect the long-term health of their brands, however, such activity must be coupled with investment in longer-term brand building media. We are pleased, therefore, to see that while investment in sales promotion activity has spiked this quarter, investment in main media advertising was revised up to its strongest level since this time last year.”