UK marketing budgets flat-line

Q2 2019 Bellwether Report shows zero overall growth following slight recovery in Q1

Prior hopes of a sustained revival were extinguished in the second quarter of 2019 as firms reported no change to available marketing budget expenditure amid growing political and economic uncertainty.

Following a return to growth in the opening quarter of the year, buoyed by firms taking a more pro-active approach to offset risks to their businesses, latest Bellwether data signalled a stalling of growth, with the net balance falling from +8.7% to +0.0%. The 20% of panel members reporting greater marketing spend was completely offset by those cutting expenditure, while the remaining 60% kept budgets unchanged since Q1.

Growing economic uncertainty, continued ambiguity over Brexit and additional risk through a change of political leadership in the UK were mentioned by firms as factors expected to challenge the business environment over the coming year. This created hesitancy among clients and delayed decision making. Panel members also raised concerns that difficult conditions domestically were damaging consumer confidence and impacting consumption. Businesses were also wary of headwinds from external sources, particularly spillover effects into UK markets from global trade disputes and weaker growth at key export destinations such as Europe and Asia.

Some marketers revise up internet, main media and events marketing budgets

Nevertheless, marketing executives were given extra discretion over internet-based advertising in the second quarter, as signalled by a net balance of +11.5% of firms reporting budget growth (+17.2% in Q1). Within internet, search/SEO budgets also grew solidly (net balance of +9.9% from +14.2%).

Main media advertising budgets were also given a boost in the second quarter, as some firms used big ticket marketing campaigns to build brand recognition and expand customer bases. There were also suggestions that marketing was being deployed as a defensive strategy due to increased competitive pressures. Overall, a net balance of +5.6% of companies reported greater main media marketing budgets (+5.2% in Q1).

The only other Bellwether category to register growth in the second quarter was events. The net balance increased to +4.8%, from +3.4% previously, its highest since the first quarter of 2018 and corroborating with forecasts made earlier in the year that events budgets would grow over the 2019/20 financial year.

Meanwhile, available market research spend was reduced for a sixteenth successive quarter (net balance of -2.9% from -4.2%), while PR budgets were also cut (net balance of -5.2% from +0.0%). A second successive downward revision to sales promotion budgets was also recorded (-7.1% from -3.7%). Aside from the ‘other’ advertising category (net balance of -12.8% from -5.4%), it was direct marketing which was the worst performer, with the net balance falling to -9.0% (-3.5% previously), the lowest level in over ten years.

Own-company outlook turns more negative

Bellwether panel members remained negative regarding financial prospects in the second quarter, casting more downbeat assessments towards both industry-wide and company-own finances than seen during the opening quarter of 2019.

With precisely 34% of marketing executives reporting a pessimistic outlook towards finances in their industry, compared to approximately 8% that were optimistic, the resulting net balance (-25.6%) signalled the second-most negative assessment since the fourth quarter of 2011 (surpassed only by the Q4 2018 reading of -28.6%). Furthermore, this was down from a net balance of -22.6% seen in Q1.

Latest data also pointed to deeper negativity towards own-company financial prospects. The net balance fell to -9.8%, from -2.7% in the first quarter, signalling the highest degree of pessimism since Q4 2011.

Adspend forecasts for 2019 subdued, but improvement beyond 2020 foreseen

Bellwether remains cautious towards 2019, expecting only a modest 1.1% annual increase in adspend over the year as a whole. Various factors underpin its reservation, namely ongoing Brexit uncertainty, but also recent developments in the UK economy, which this year so far have largely been negative. There is a real possibility that the UK economy will contract in the second quarter, and the Bellwether panel comments, as well as latest Bellwether data, highlight that businesses are looking to contain costs and shield against challenging demand conditions.

Nevertheless, Bellwether believes businesses will be eager to accelerate marketing efforts once uncertainty has cleared, and subsequently see 2020 onwards being more positive on the adspend front. It expects growth of 1.8% in 2020, followed by stronger rates of increase in 2021 (2.0%), 2022 (2.2%) and 2023 (3.1%).

Commenting on the latest survey:

Paul Bainsfair, IPA Director General:

“Between Boris, Jeremy and Brexit, coupled with a dip in consumer confidence, it is perhaps no wonder that this quarter’s Bellwether shows zero growth to overall UK marketing budgets. Until a clearer political and economic path is outlined, the vast majority of companies are locked in stasis. It is reassuring to see, however, that some companies are revising up their investment in main media advertising; this is where they will build the longer term growth of their brands, which is crucial to weathering these tougher times.”

Joe Hayes, Economist at IHS Markit and author of the Bellwether Report:

“The expansion in marketing budgets during the first quarter proved short-lived, but developments in the wider economy during Q2 have shown that more intense challenges lie on the horizon for UK businesses. Firms have subsequently adjusted to this, belt-tightening in some cases and withdrawing into a wait-and-see approach once again. Given the economic and political uncertainties that remain at large, a neutral stance towards budget setting appears fully justified.

“That said, internet marketing remained a bright spot. We see continued growth in the digital space, with panellists pointing to ongoing drives through technological improvements and social media channels. Firms also kept boosting main media marketing spend, with brand recognition and building initiatives ongoing.”

Industry reaction to the Q2 2019 Bellwether Report can be found on the IPA Blog.

For additional information, please purchase the full Q2 2019 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 amongst 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