UK marketing budgets revised up to strongest levels in almost a decade
Total UK marketing budgets were revised up to their strongest level in almost a decade in the fourth quarter of 2023, according to the latest IPA Bellwether Report. The latest results indicate that despite the intensely challenging backdrop for UK businesses, many companies opted to remain proactive in the market, instead of withdrawing into cost-saving mode.
Slightly over one quarter (26.0%) of panellists saw total marketing budgets rise in the fourth quarter of 2023, more than double the proportion registering cuts (11.3%). The resulting net balance of +14.7% was up sharply from +5.3% in the third quarter of last year and its highest since Q2 2014. This subsequently extended the current sequence of expansion in total marketing budgets to 11 quarters, the longest uninterrupted period of sustained growth since 2018.
Paul Bainsfair, Director General, IPA: "Despite the challenging economic climate, this quarter’s upbeat Bellwether findings show that companies are heeding the evidence that continuing to advertise through the tough times can help maintain brand loyalty and protect the long-term health of their brands. "However, we also saw anecdotal feedback that some companies noted plans to price their goods and services more competitively in a bid to gain market share. While this is good news for the consumer, it is further proof that companies are experiencing a tough trading environment."
Growth by category in Q4 2023
Events was the best-performing sub-category of marketing in the final quarter, recording a strongly positive net balance of +15.9%, its highest in a year-and-a-half (up from +5.9% in Q3). A notable finding was in direct marketing, which saw its greatest upturn (net balance of +12.6%, from +4.3%) since the opening quarter of 2005. These two categories were the principal drivers of total marketing budget growth at the end of 2023 as expansions of a more modest nature were seen in PR (net balance of +1.9%, down from +4.0), main media (+1.9%, down from +7.4%) and sales promotions (+1.4%, from -1.5%).
The slowdown in main media compared with a strong performance in the third quarter, where the category was the top performer. Underlying data revealed mixed trends, with other online advertising (net balance of +13.2%, up from +9.1%) and video (+6.6%, from 0.9%) contrasting with contractions in published brands (-1.4%, from +0.8%), audio (-7.0%, from -10.8%) and out of home (-8.1%, from -12.1%).
Just two of the seven Bellwether categories recorded a contraction in budgets in the final quarter – market research (net balance of -5.0%, from -1.5%) and other (-6.4%, from -7.9%).
Outlook for 2024/25 total marketing budgets remarkably strong according to preliminary budget setting data
Latest survey results showed budget expansions at 44.5% of respondents, around triple (15.1%) those that were restricting spending plans in the 2024/25 period. Consequently, a net balance of +29.4% of companies with stronger budgets than the last financial year showed a robust outlook for UK marketing.
Optimistic preliminary budget setting was seen in five of the seven Bellwether categories. Events is expected to have another strong year, with a net balance of +17.8% boosting their budgets for 2024/25, while direct marketing also appears to be an area of focus (net balance of +16.8%) after a strong fourth quarter revision. Encouragingly, main media is also set for a strong performance (net balance of +14.2%). The two remaining areas of expansion in 2024/25 are PR (net balance of +10.6%) and sales promotions (net balance of +8.2%).
As was the case for 2023/24, budget setting or the other marketing category was unchanged (0.0% net balance), while market research was the sole area expected to see budget cuts (net balance of -1.0%).
More optimism towards company-own prospects
The latest Bellwether data showed a widening of the divergence between company-own and industry-wide financial prospects during the final quarter of 2023, with firms feeling more bullish towards growth prospects compared to three months prior, but still remaining concerned towards the outlook for their sector as a whole.
Looking at the industries they operate in, 13.8% of surveyed companies were more optimistic than they were in the third quarter of 2023. However, this was more than offset by the 26.5% of respondents signalling a lack of confidence in the outlook. As a result, the net balance registered -12.7%, which was unchanged from Q3 (and also compared with -12.6% in Q2). Overall, business sentiment towards industry-wide financial prospects have been stuck in firm pessimistic territory for over two years.
This contrasted markedly with Bellwether firms' sentiment towards their own businesses. Just shy of one third of respondents (32.4%) were feeling more upbeat compared to three months ago, whereas 19.8% were gloomier. At +12.6%, the net balance was at its most positive since the third quarter of 2021.
Adspend to fall in real terms in 2023 and 2024
Since the last Bellwether report, there has been little change made to S&P Global Market Intelligence's forecasts for the UK economy. Real GDP is expected to rise by 0.5% in 2023, a touch higher than the 0.3% forecast it had pencilled in the Q3 edition. However, this is a lacklustre expansion, with the UK economy expected to enter a technical recession in the fourth quarter of 2023.
In turn, the UK economy is expected to begin 2024 in a shallow recession, and the outlook for the year is challenging. For the year as a whole, S&P’s forecast is for a 0.1% contraction (as was also the case in our Q3 forecast), as high borrowing costs and still-elevated inflationary pressures constrain economic activity. Consequently, S&P forecast adspend declining in real terms in both 2023 and 2024 (by 0.6% and 0.7% respectively).
For the second half of 2024, however, the economy should return to growth, for which S&P’s ad spend forecast outlook for 2025 and beyond is more positive at 1.1% in 2025 and stronger expansions in 2026 through to 2028 (1.7%, 1.9% and 1.9% respectively).
Joe Hayes, Principal Economist, S&P Global Market Intelligence: "The resilience of UK marketing continues to be at odds with the worsening economic climate businesses are facing. Instead, companies are demonstrating the foresight to maintain a longterm view towards their brands, maintaining a healthy level of investment in the tools to stave off competition, retain clients and win new business. The UK economy is expected to endure a shallow recession, which will end in the first half of 2024, and our data clearly show more companies are prepared to ride out the bumps to put themselves in a strong position when the recovery phase kicks in than those that aren't."
