The Report, which has been conducted on a quarterly basis since Q1 2000, revealed a net balance of +13.4% of companies registering an increase to their budgets during Q3 2016. This is up from +10.7% in Q2 and marks a fourth year of successive positive revisions. (The net balance is calculated by subtracting the percentage recording a downward revision from the percentage recording an upward revision.)
Despite positive revisions to budgets, the uncertain economic and political climate had a noticeable impact on financial prospects during the third quarter of 2016.
Industry financial prospects remained negative, with the net balance falling to -12.1%. That is down from -8.1% and the third successive reading below zero (meaning a greater proportion of panellists have become more pessimistic than optimistic over the past three months). This was the lowest recorded by the survey since Q4 2012.
Panellists were, however, a little more optimistic about their own company financial prospects during Q3. Over 31% of panellists have grown more optimistic, compared to less than 21% that indicated a more pessimistic tone, resulting in a net balance of +10.6%. However, that was down from +13.7% in the previous quarter and the lowest recorded by the survey since Q4 2012.
Adspend forecast growth
Reflecting the overall upward revision to budgets, yet decrease in confidence, Bellwether has updated its forecasts for adspend in 2016, and now predicts some modest growth for the year as a whole (+1.9%). This is up from the Q2 Bellwether prediction of -0.2% growth and in line with expectations for a more robust UK economic performance following the initial shock to activity from the EU referendum vote.
Bellwether does, however, predict that 2017 is set to be a more challenging year, with adspend expected to decline by -0.7% as business investment is pared back in line with the uncertainty over the negotiated terms of the UK withdrawal from the EU. This is expected to also weigh on consumption, with higher prices from the depreciation of sterling set to reduce household purchasing power and also undermine spending.
Adspend is set to show modest signs of recovery in 2018 with Bellwether projecting growth of +0.2%, followed by a return to more solid expansion in 2019 (+2.4%) and 2020 (+2.7%).
Events enjoyed the strongest sub-category growth in Q3 2016 with a net balance of +9.9% the second highest in the four years of data collection for this category (beaten only by the +13.4% in Q2 2016). Internet budgets also continued to rise during the third quarter to +9.5% during the quarter. This marks over seven years of upwards revisions, although this was slightly lower than Q2’s +10.9%. Within internet, Search/SEO recorded a net balance of +7.3% for Q3, but Mobile posted -2.6% (this is the first time Bellwether has reported mobile as a subsection). Direct marketing budgets were also revised up, recording a reading of +4.9%, the highest level for a year-and-a-half.
Several sub-categories did however record net falls in budgets over the quarter, perhaps most notably Main media advertising. The respective net balance fell to -3.8% in Q3 2016, down from the previous quarter’s two-year high of +9.3% and the first decline since Q1 2013.
Further categories to record reduced budgets included PR (-1.1%), Market research (-2.3%), Sales promotions (-4.0%) and ‘Other’ (-6.3%).
Paul Bainsfair, IPA Director General:
“With marketing budgets revised up to their highest degree in over two years, we can say that marketers have held their nerve in the face of Brexit uncertainty. It is also pleasing that in light of this, Bellwether is now predicting a positive forecast for adspend growth for 2016. As the negotiated terms of UK withdrawal from the EU will become clearer in 2017Bellwether predicts a more challenging year. We are certainly living through interesting times.”
Paul Smith, Senior Economist at IHS Markit and author of the Bellwether Report:
“Given the widely held view of a challenging economic climate following the Brexit vote in late June, the latest Bellwether survey provides some welcome positive news with companies willing to raise and inject fresh resources into their marketing budgets during the third quarter.
“The outlook remains uncertain, especially when trying to understand what the impact of the EU referendum vote will be, and financial prospects have somewhat softened as a result. However, a number of companies are looking through the uncertainty and see a new range of opportunities for their businesses to grow and flourish with.”
James Goddard Chief Executive JJ Marketing:
“PR budgets have seen an on-going see-saw trend over the past two years of the survey so it’s not concerning that public relations budgets were cut fractionally in Q3, following modest growth in the previous quarter. However, with events and online remaining the strongest performers it clearly demonstrates how marketing has got more and more personal. With personalisation driving budgets, the PR industry needs to ensure it also delivers insight led, targeted campaigns and interactive content that ensure audiences are reached in a targeted way.”
Tom George, Chairman UK and Northern Europe EMEA, MEC and chair of the IPA Media Futures Group:
“The latest edition of the Bellwether report perhaps reflects the economic uncertainty felt in the country as a whole following the Brexit decision made in the 23rd June referendum. For the first time since early 2013, the net balance for main media advertising showed a decline (of just under 4%). At first sight, it would seem an uncontentious observation that the decision to exit the EU has caused the negative net balance. However, the positive net balance in the preceding Bellwether reports was already decelerating and the trends we have seen in investment in the main media surfaced long before the announcement of the referendum. This notwithstanding, the UK media market has softened as we near the end of 2016.
GroupM’s previous forecast of 6.3% does appear now to be slightly on the high side. If we assume that the growth in investment on internet advertising and the decline in print advertising continues at the same rate as 2015 with all other media remaining flat, this still would give a growth of 4%. We still believe that main media advertising will grow in excess of 5% this year and predict that 2017 will grow at a lower rate of 4%.”
Patrick Reid, CEO EMEA, Imagination:
“Consumers are demanding richer, more rewarding relationships with Brands and marketers are fulfilling this need with experiences that are meaningful, rewarding and measurable.
The sustained recognition of the value of experiences reflects an increasingly significant shift in approach from brand marketers to achieve the consumer engagement they are seeking. With the opportunities smart technology and social media offer us in blending the physical and digital manifestation of these experiences, we see this trend continuing.”
Liz Barnsdale, MD, AIS Havas:
“With the increased pressure on marketers to prove the cost-effectiveness of their activity it's encouraging to see that Direct Marketing budgets are on their way up. Nobody really predicted Brexit and we certainly can't predict the future impact on the economy over the next two years, so the more we can invest in marketing levers that we can more accurately forecast the more likely we are to weather the uncertainty ahead. Direct provides a true measure of accountability to the business bottom line and a means by which businesses can better predict the value of their spend. And as such my hope is it continues to be an area businesses invest in.”
Brian Coane IPA Chairman for Scotland, and Partner, Leith Agency:
"The latest Bellwether survey provides encouraging news of the upward trend in spend extending to over four years. We need to continue to make the positive case for advertising against the uncertain outlook in Scotland. Business that invest in effective communications will benefit over the longer term."
Stephen Roycroft, IPA Northern Ireland Chairman and Managing Director, RLA Ireland:
“It is always encouraging to record that businesses are confident of the return that they can make on marketing investment; more so when there remains any uncertainty in the market. The IPA and its Members share such confidence in the business effectiveness of well-planned marketing communications in any climate”. Stephen Roycroft, Chair, IPA Northern Ireland Group.
England & Wales
Ben Quigley IPA Chairman England & Wales and Group Chief Executive, Everything Different:
“It's great news that despite economic uncertainty post-Brexit, marketing budgets have revised upwards at the strongest rate in the last 2 years. As we stand, businesses around the UK are clearly investing in new opportunities for growth rather than reacting negatively to uncertainty.”
Jackie Holt, IPA North West City Head and Managing Partner, BJL:
“The Bellwether Report offers some encouragement with the reported budget sentiment very welcome.
“The Brexit impact remains a weak indicator at the moment but once article 50 is invoked the impact on business confidence will be seen and the forecast weakening in budgets may come to fruition.
Andrew Wilson, IPA City Head for West Midlands and Chief Executive, WAA:
"Uncertainty might as well have been the strapline for the last 24 months in marketing. 'Are we really out of recession?' was closely followed by General Election paralysis, and the curve-ball of Brexit has extended the period yet further.
"This procession of events has now had the effect of forcing people into action, with the penalty for doing nothing greater than the gamble of investing - hence the fact that we are seeing upward revision in spend and forecasts but without the increasing confidence that would normally go hand in hand with that investment.
"We are continuing to see businesses focus their marketing efforts on the areas that are most likely to drive 'instant gratification' in terms of reporting results, with events and online activity the most obvious ones.
"Understanding and embracing this situation is now key to offering the best partnership support to clients. Developing ideas that offer short-term reassurance and results, but contribute toward a longer term direction and strategy."
The Bellwether Report is researched and published by Markit Economics on behalf of the IPA. First published on the 17th July 2000, it features original data drawn from a panel of around 300 UK marketing professionals and provides a key indicator of the health of the economy. The 8-page 12th October 2016 edition is available to purchase from the IPA website for £99+VAT (IPA members) and £140+VAT (non-members) as an immediately downloadable PDF. To sign up for an annual subscription, or to request historical data, contact firstname.lastname@example.org.
Last updated 17/10/2016