UK marketing budgets up in Q2, but future prospects look less promising – Bellwether Report

David Murphy
Events was the the best-performing Bellwether category in Q2 as delegates felt confident enough to return to in-person events

Total UK marketing budgets continued to grow at a solid pace in the second quarter of 2022, yet despite this, with strengthening economic headwinds, UK companies’ financial prospects deteriorated sharply, contributing to cuts in ad spend forecasts. Those are the key conclusions from the latest IPA Bellwether Report, published today.

According to the Q2 2022 Bellwether data, 24.2 per cent of surveyed companies raised their total marketing expenditure during the second quarter, while 13.4 per cent registered budget cuts. At +10.8 per cent, the resulting net balance remained in solid positive territory, but indicated a slight slowdown in growth when compared to the opening quarter of 2022 (+14.1 per cent).

Events was a key driver of total marketing activity growth, with the latest data signalling another record upward budget revision. At +22.2 per cent, the respective net balance was up from +18.7 per cent previously and the strongest-performing Bellwether category by a considerable margin. The new ‘living with COVID’ normality has given companies the confidence to plan face-to-face events, with many firms reportedly set to use this platform to relaunch their brands. The only other Bellwether category to record growth in Q2 was public relations, which saw its expansion strengthen from the start of the year (net balance of +3.7 per cent, from +0.6 per cent).

Main media – which includes big-ticket advertising campaigns relating to TV – saw marketing budgets stagnate, bringing to an end a year-long sequence of growth. At 0 per cent, the net balance was down sharply from +9.4 per cent. Within main media, there were notable differences. While other online (+4.4 per cent, from +18.6 per cent) and video advertising (+0.8 per cent, from +9 per cent) growth continued, they both saw steep slowdowns. Audio (-16.4 per cent, from -8.5 per cent) and out of home (-15.9 per cent, from -4.6 per cent) saw downturns deepen, while published brands moved from positive to negative territory (-2.6 per cent, from +1.3 per cent).

Direct marketing was another Bellwether category to stagnate in Q2, also drawing to a close a four-quarter sequence of growth. The remaining monitored marketing activities saw budgets fall in the second quarter. Sales promotions (-0.7 per cent vs. +8 per cent previously); market research (-6.5 per cent vs. -3.5 per cent previously); and other marketing activities not already accounted for (-8.3 per cent vs. -0.9 per cent previously) all dragged on total expenditure.

The latest Bellwether survey signalled a broad-based deterioration in financial prospects in the second quarter. Compared to three months ago, survey respondents became more pessimistic towards their industry-wide financial prospects, with a net balance of -26.7 per cent of companies more downbeat overall. This was the most negative outlook since Q3 2020 and compared with a net balance of -3.6 per cent in the first quarter of the year. While 13.6 per cent of companies were more optimistic, 40.3 per cent expressed gloomier sentiment.

Meanwhile, for the first time since Q3 2020, own-company financial prospects slipped into negative territory. A net balance of -9.5 per cent of companies signalled pessimism regarding their own company performance, the most downbeat for two years. Underlying data showed that 30.7 per cent of survey respondents were pessimistic towards their own business prospects, compared to 21.2 per cent that were more optimistic.

Since the last Report, the IPA Bellwether author, S&P Global Market Intelligence, has downgraded its assessment for UK economic growth prospects in 2023 through to 2025, which in turn has seen it downgrade its ad spend growth forecasts over this period too. It has also cut its ad spend growth forecast for 2022 to reflect the strengthening economic headwinds that have built up through the year.

Elevated inflation throughout 2022 points to a bigger hit on consumer confidence and disposable incomes. High costs for businesses will also weigh on the economy, while rising interest rates act to deter investment. The risk of a recession has intensified, and as such, it has cut its ad spend forecast for this year to 1.6 per cent, from 3.5 per cent previously.

Much of the economic challenges seen at present are likely to spill over into 2023. With interest rates also set to rise further and households and businesses likely to remain in cost-containment mode until inflation comes down, S&P’s GDP forecast for 2023 has been cut from 1.2 per cent to 0.5 per cent, bringing down its ad spend growth forecast from 1.8 per cent to 0.8 per cent.

With the growth path beyond 2023 now looking more uncertain amid the potential for these strong downside risks to persist, 2024, 2025 and 2026 ad spend growth forecasts have also been trimmed to 1.4 per cent (from 1.7 per cent); 2 per cent (from 2.2 per cent); and 2.3 per cent (from 2.4 per cent) respectively.

"Amid a deteriorating economic outlook for UK businesses, sustained growth in total marketing activity is encouraging,” said Joe Hayes, Senior Economist at S&P Global Market Intelligence and author of the report. “However, the stagnation in main media marketing budgets is a disappointing result from the Q2 survey and suggests concerns around the outlook are weighing on decision-making. Risks are clearly skewed to the downside as the intensifying cost of living crisis weighs on disposable incomes, while firms face difficult decisions regarding their spending at a time when their cost burdens continue to inflate."