Cuts to UK marketing budgets ease in Q1 2021

A net balance of -11.5% of panellists reported a contraction in total marketing budgets during the first quarter of 2021. Although the rate of decline remained historically marked, it eased substantially from the final quarter of 2020 (net balance of -24.0%). Overall, just over a quarter (25.7%) of surveyed businesses saw a decrease in available adspend in the latest survey period, while 14.2% recorded an increase.

Unsurprisingly, restrictions related to COVID-19 continued to act as the main drag on marketing budgets, according to anecdotal evidence. Amid softer demand conditions and ongoing closures in some sectors, businesses mentioned cost cutting programmes which had weighed on adspending in the latest survey period.

Revisions by marketing category

Each of the seven monitored marketing categories saw a further decline in budgets at the start 2021, the sharpest of which was seen in Events. Although the net balance of firms reporting a contraction eased to -43.2% from -62.9% at the end of last year, the pace of reduction was among the quickest ever recorded. Cuts to budgets were also seen in Market Research (net balance of -17.8%, up from -25.0% in 2020 Q4), Sales Promotions (-16.2%, from -26.5%), Other (-14.7%, from 29.6%), Direct Marketing (-11.8%, from -13.9%), Main Media (-8.2%, from -21.8%) and Public Relations (PR) (-8.0%, from -8.5%). (Underlying data for Main Media indicated that the decline in this category was driven by lower budgets for Out of Home advertising (net balance of -24.1%, from -36.7% in 2020 Q4), Published Brands (-22.2%, from -29.0%) and Audio (-9.0%, from -21.6%). At the same time, Other Online spending budgets stabilised (0.0%, from +0.7%), while Video adspending returned to growth in the first quarter (+3.3%, from -3.5%).)

Budget plans 2021/2022

Forward looking data regarding adspending in 2021/2022 suggests that budgets could recover in the next financial year. A net balance of +17.4% of firms expect their total marketing budgets to increase over the next 12 months. This reading signals the strongest growth expectations for adspending since 2018, with the latest figure having been upwardly revised from a preliminary estimate of +12.0% in the previous report.

Of the seven broad marketing categories, expectations for the coming year remain strongest in Main Media Advertising, where a net balance of +10.1% of firms anticipate higher expenditure. Marketing executives also anticipate a rise in budgets related to Public Relations (net balance of +7.4%) and Direct Marketing (+6.8%), while expectations were neutral regarding Sales Promotions (0.0%). The other three types of marketing were forecast to experience further cuts, with the sharpest reduction expected in Events (-28.4%), followed by Other marketing (-5.4%) and Market Research (-4.9%) respectively.

Industry-wide outlook points to recovery

Both industry-wide and own-company financial prospects improved significantly in the opening quarter of 2021, following a year of subdued expectations during 2020.

Bellwether panellists were optimistic regarding industry-wide financial prospects for the first time since the end of 2015 in the latest survey period. In fact, the net balance of firms that were more confident than three months ago was +26.2%, up sharply from -5.8% in the fourth quarter of 2020, and the highest since the start of 2015. Overall, 41.2% of firms were more optimistic on industry-wide financial prospects compared to three months ago, while only 15.0% were less so.

When questioned on own-company financial prospects, panellists were also more upbeat than three months ago. The result followed the first positive reading for a year in the final quarter of 2020. In the first quarter of this year, the degree of confidence strengthened markedly, with a net balance of +36.6% of firms more confident of an improvement in their own financial prospects. This marked the strongest level of optimism for six years, with almost four times as many companies reporting improved sentiment compared to those recording a deterioration (+49.5% versus 12.9%).

Adspend recovery set to gather pace in 2022

With COVID-19 restrictions having been in place throughout much of the year, Bellwether author IHS Markit forecasts a -9.9% contraction in UK GDP for 2020. The sharp downturn in activity was predominantly driven by severe economic disruption in the second quarter of the year, when the lockdown restrictions caused many firms to temporarily close. Although the reopening of businesses during the summer months provided a boost to GDP in the third quarter, this was not enough to offset the earlier decline. Consumer spending and business investment are estimated to have fallen by -11.0% and -8.7% for the year as a whole. These figures point to a decline of approximately -15.7% in adspending during 2020.

However, amid the ongoing rollout of COVID-19 vaccines and the planned relaxation of UK restrictions later this year, the outlook is set to improve. IHS Markit expects a +3.7% expansion of GDP in 2021, followed by an even quicker rise of +5.8% in 2022. Assuming that the economic recovery progresses as expected, it foresees a 3.5% increase in adspend during 2021, followed by a further acceleration to +6.9% in 2022, before stabilising nearer the long-run trend. Principle downside risks to these forecasts include the emergence of new vaccine-resistant strains of the virus and the delay of vaccine rollouts in other countries that act as key trading partners to the UK, such as those in continental Europe.

Commenting on the latest survey

Paul Bainsfair, Director General, IPA:

"Despite remaining in negative territory overall, the vital signs from this quarter’s Bellwether Report are looking ‘V’ encouraging for a bounce back in UK marketing investment. With companies’ confidence levels regarding their financial prospects soaring and with almost three quarters of UK companies either revising their marketing budgets upwards or keeping them the same this quarter versus last, the trajectory is very much moving in a positive direction and at a good pace. As the nation comes out of lockdown consumers will be actively seeking out new products, experiences and entertainment, for which it will be more important than ever for companies to build and rebuild their brand awareness." 

Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report:

"Although marketing budgets continued to decline at a marked pace amid ongoing COVID-19 restrictions, it was positive to see a further trend towards stabilisation. Meanwhile, upbeat forecasts from UK marketers for the coming financial year, after the marked reduction in budgets through 2020, bolsters expectations for a post-pandemic recovery and bodes well for the UK economy. Without a doubt, the improvement in budget plans from the previous survey period will have been supported by the release of the UK governments roadmap to relaxing restrictions. It has allowed businesses to look beyond the current climate and begin to build towards a time when demand will recover. If all goes to plan, a strong economic recovery should see adspending rise sharply in the second half of the year."

Valerie Ludlow, CEO, ASG & Partners and IPA Chair for Northern Ireland:

"Northern Ireland agencies have experienced a relatively positive Q1, with client spending confidence returning and delayed marketing plans being revisited, revised and reactivated. NI agencies' longer-term recovery is, however, dependent on a speedy solution for the region's wider political machinations. After 12 months of navigating the difficulties of Coronavirus, the issues of a delayed recovery timeline, coupled with the recent civil unrest surrounding the NI protocol, could destabilise the regional economy and delay the local marketing industry's recovery."

David Shearer, Managing Partner, MediaCom Edinburgh and IPA Chair for Scotland:

"Entirely as expected, the consequences of the Coronavirus pandemic continue to cast a long shadow across Q1 2021 with a further decline in UK marketing budgets. However, the clear roadmap to easing of restrictions fuelled by the vaccination programme provides a plausible cause for optimism and as we’re in the business of advertising, we owe it to ourselves to bolster that outlook! An anticipated release of pent-up demand has prompted the strongest growth expectations for advertising expenditure in the last couple of years. I’m certainly looking forward to the retail, hospitality and leisure sectors starting on the road to recovery - followed shortly thereafter (hopefully) by the travel industry. Now is the time to be talking to clients about how they make the most of these opportunities."

Sean Feast, Director and co-owner of Gravity Global:

"The fact that total marketing budgets continue to fall, albeit at a softer rate, is not a surprise, neither is it surprising to see that COVID-19 is still an issue and will be for some months to come. What is most encouraging, however, is to see the sentiment regarding industry-wide financial prospects turning positive. For many of us working in the PR and media relations space, the glass has been half full for some time now, and it is good to see that feeling evidenced in real figures. At the risk of repeating myself, for every loser there is a winner, and for every client who may have held back on budgets there are those who have seen COVID as an opportunity, rather than a threat. There is plenty of new business out there, and plenty of smart clients who see an investment in PR and marketing as the route to emerging from the crisis in a stronger place than when they went into it."

Mark Howley, COO at Publicis Media and Interim Chair of the IPA Media Futures Group:

"Media spend patterns are very much reflecting the progress, and chops-and-changes, of the pandemic. If the UK government can stick to the roadmap out of lockdown, we should see a significant resurgence in H2. The latest Bellwether report does give you hope that there is light at the end of the tunnel. Main broadcast media are predicted to lead the way as clients rebuild brands and emotional connection for a new, emergent consumer and economy. As Marg Jobling (CMO NatWest Group) observed, we could see a ‘right brain reset’ in the type of advertising, and media, that resonates post-pandemic."

David Fletcher, Chief Data Officer, Wavemaker UK:

"Whilst research businesses will find some comfort in the softening of declines evident across Bellwether categories, the likelihood of further declines across 2021/22 should be a concern. The transition phase we’re now in is clearly turbulent. In the short-term there is an obvious opportunity for research to provide the essential context for the daily tangibility of digital metrics. The longer-term challenge is clearly existential. Researchers need to innovate to guarantee business relevance to advertisers for a post-pandemic world."

Amy Lawrence, Digital Director, MediaCom and Chair of the IPA Digital Marketing Group:

"After a long and tough year, the cautious optimism in this quarter’s report points to a positive 2021 for our industry. Although Main Media budgets are still seeing decline overall, the deceleration of this is certainly encouraging – and with businesses embracing the new opportunities that post-pandemic life will bring, it is no surprise that Video and Other Online lead the charge in this recovery. As lockdown eases, we will no doubt see other channels follow in the second half of the year."

For additional information, please purchase the full Q1 2021 report (£99+VAT for IPA members, £140+VAT for non-members) that also has content detailing threats and opportunities facing marketers and their companies over the coming 12 months. The report includes charts comparing business confidence among survey panellists to wider economic output, which depicts how views on financial prospects are a function of the current business environment. Annual subscription is available by contacting economics@ihsmarkit.com