Coronavirus causes UK marketing budgets to take bigger hit than global financial crisis

UK marketing budgets took a massive hit in the second quarter of the year, as the coronavirus pandemic took its toll on the industry. The damage dealt meant that budgets were fell to their lowest point in the 20-year history of the IPA Bellwether Report.

According to the latest edition of the report, 64 per cent of marketers recorded a decrease in spending compared to the first quarter of 2020, with only 13 per cent registering an increase. These figures reflect a net balance of -50.7 per cent in Q2, which is way down from the -6.1 per cent seen in Q1.

“As we suspected, these Q2 Bellwether figures reveal the very grave impact of COVID-19 on UK companies’ marketing budgets, financial prospects and employment plans. Understandably companies in the most severely disrupted sectors have had few options but to preserve cash and operations to survive until trading conditions are more benign. We can only hope that the range of Government aid – from VAT cuts to the Eat Out scheme, in addition to the furlough scheme and more, can help to facilitate this,” said Paul Bainsfair, IPA Director General.

As you’d expect, events budgets were cut by 80 per cent of Bellwether panellists, while only 3.6 per cent posted an increase. Main media advertising saw a net decline of -51.1 per cent – with out-of-home advertising being the worst-performing sub-category, seeing a net fall of -61.2 per cent.

Direct marketing and public relations saw the joint-softest budget cuts, but still recorded net balances of -41.6 per cent, showing just how severe the damage is right across the UK marketing world.

Looking ahead, panellists remained pessimistic, generally felling negative about the prospects for both their own companies and the industry as a whole. 66 per cent of panellists reported a pessimistic outlook versus just 11.5 per cent expecting an improvement. This is the most negativity felt by the industry since the fourth quarter of 2008 when the net balance was -57.7 per cent.

For the industry as a whole, 72.4 per cent of businesses felt pessimistic about financial prospects, while only 6.4 per cent were optimistic. This is also the most negative businesses have been about the industry since Q4 2018. Back then, the net balance was -71.1 per cent.

The report expects an 11.9 per cent decline in GDP for the year as a whole, with a fall of 11.3 per cent in ad spend. Looking ahead, both GDP and ad spend are expected to bounce back in 2021, jumping 4.9 and six per cent respectively.

“While the future trajectory of the economy is unpredictable, however, that of brands starved of marketing investment is much clearer,” said Bainsfair. “Our evidence from previous recessions and periods of buoyancy consistently shows that cutting marketing investment weakens brands in the near-term and limits growth and profitability in the long-term.”