UK marketing budgets revised up in Q2 yet adspend forecasts fall

The IPA Bellwether Report reveals the marketing spend intentions across the UK’s top industries and in its 22 years of reporting has been one of the first indicators to show both recession and recovery.

According to the Q2 2022 Bellwether data, around a quarter (24.2%) of surveyed companies raised their total marketing expenditure during the second quarter, while 13.4% registered budget cuts. At +10.8%, 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%).

Growth by category in Q1 2022

Events was a key driver of total marketing activity growth, with the latest data signalling another record upward budget revision. At +22.2%, the respective net balance was up from +18.7% previously and the strongest-performing Bellwether category by a considerable margin. The new "living with COVID" normal 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%, from +0.6%).

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 0.0%, the net balance was down sharply from +9.4%. Within main media, there were notable differences. While other online (+4.4%, from +18.6%) and video advertising (+0.8%, from +9.0%) growth continued, they both saw steep slowdowns. Audio (-16.4%, from -8.5%) and out of home (-15.9%, from -4.6%) saw downturns deepen, while published brands moved from positive to negative territory (-2.6%, from +1.3%).

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% vs. +8.0% previously), market research (-6.5% vs. -3.5% previously) and other marketing activities not already accounted for (-8.3% vs. -0.9% previously) all dragged on total expenditure.

Pessimism towards industry-wide financial prospects deepens in Q2 as companies turn negative on own-business outlook

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% of companies more downbeat overall. This was the most negative outlook since Q3 2020 and compared with a net balance of -3.6% in the first quarter of the year. While 13.6% of companies were more optimistic, 40.3% 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% of companies signalled pessimism regarding their own-company performance, the most downbeat for two years. Underlying data showed that 30.7% of survey respondents were pessimistic towards their own business prospects, compared to 21.2% that were more optimistic.

Adspend forecasts cut amid deteriorating economic outlook

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 adspend growth forecasts over this period too. It has also cut its adspend 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 adspend forecast for this year to 1.6% (from 3.5% 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% to 0.5%, bringing down its adspend growth forecast from 1.8% to 0.8%.

With the growth path beyond 2023 now looking more uncertain amid the potential for these strong downside risks to persist, 2024, 2025 and 2026 adspend growth forecasts have also been trimmed to 1.4% (from 1.7%), 2.0% (from 2.2%) and 2.3% (from 2.4%) respectively.

Commenting on the latest survey:

Paul Bainsfair discusses the Q2 2022 IPA Bellwether Report from The IPA on Vimeo.

Paul Bainsfair, Director General, IPA:

"The Q2 Report out today shows that marketers are understandably concerned about the challenging business climate ahead, as reflected in the deterioration of their financial prospects. 

"It is interesting to see, however, amid the mounting economic headwinds, there were a number of businesses that signalled their intent to market aggressively to support their brand and gain market share from less-prepared competitors. This is usually a wise and canny move.

"Meanwhile, others were also planning for the challenges ahead by positioning their businesses to support customers through difficult times.  Brands need to be seen and continue to work for the benefit of consumers. They are important because they offer choice which ensures competition and lower prices, which in the months ahead will be important for consumers looking to spend their money wisely."

Joe Hayes, Senior Economist at S&P Global Market Intelligence and author of the Bellwether Report:

"Amid a deteriorating economic outlook for UK businesses, sustained growth in total marketing activity is encouraging. 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."

Patrick Reid, Group CEO, Imagination:

"It’s fantastic to see continued positive growth for the Experience sector in this latest Bellwether. As we’re seeing across our portfolio of clients, the demand and importance of experiences continue to grow as brands strive to connect meaningfully and engage their target audiences on an emotional level.

"With experiences becoming a key factor within marketing budgets there has been a clear bounce back following the pandemic. Consumer appetite for real-life experiences has grown and brands are responding accordingly with a broader take on experiences, delivering not just in-person but creating experience platforms and campaigns which generate content across a wider set of channels, resulting in broader engagement, creating both the depth and reach that brands want. After such a turbulent time it’s great to see the experience industry thriving again."

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

"After several quarters of positive signs and continual growth, it is disappointing to see main media advertising budgets stagnate in the Q2 report – however, with so much economic uncertainty this is certainly not surprising. Continuing the shift seen in Q1, “other online” remains ahead of “video” as the main growth channel, although at +4.4 and +0.8 respectively, this does little to offset big cuts elsewhere. The next few months are crucial for marketers to get a clearer picture of the impact that the cost of living crisis will have on consumers – however as we have seen many times before, those who significantly cut brand spend will be hit the hardest in the longer term."

Bill Doris, VP Analytics, EMEA, MediaCom & IPA Media Research Advisory Group Chair:

"As a leading economic indicator, the IPA's Q2 2022 Bellwether Report continues to provide critical intelligence on the confidence of the UK marketers. The general picture shows continued buoyancy for UK marketing budgets, but there are undoubtedly challenges ahead as the cost of living crisis and global forces begin to impact our economic outlook.

"Whilst the market research sector might expect some downward revision to budgets in the near future, it has never been as important to understand the impact of the changing economic climate on consumers and the impact on their relationship with brands. Brands that continue to invest in understanding changing consumer behaviour at this critical time will be best placed to adapt their marketing strategies and garner rewards accordingly."

Gill Jarvie, Client Services Director, Republic of Media and IPA Chair for Scotland:

"Whilst the overall growth figures reported in Q2 are to be welcomed, there can be no doubt that the future outlook is of increasing concern. In particular, growth for Main Media Advertising has remained static, which is in sharp contrast to an original forecast of 20.1% growth across the 2022/23 financial period. As budgets come under increasing scrutiny, agencies have an important role guiding their clients through this period, providing them with evidence-based arguments for investment and helping them identify opportunities."

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

"Events, PR and recruitment marketing are currently exceeding pre-Covid spend levels as businesses and employers re-engage with face-to-face and returns to the workplace. Media spends are however already showing signs of softening in light of the forecasts for slower economic growth, high inflation, increased operation costs and continued political uncertainty in both Westminster and Stormont.

"The economic policy environment in Northern Ireland is also less supportive of business growth right now which is elevating uncertainty levels around planned ad expenditures. I expect some industry growth in 2022 because of PR, events and recruitment, but forecasts for 2023 are being downgraded with the expectation that clients will be asking for smaller budgets to be worked even harder."

Michelle Wright, Managing Director, Gough Bailey Wright and IPA Chair for England & Wales:

"Around a quarter of surveyed companies raised their budgets in Q2, with Events and Public Relations driving the numbers respectively as companies make the best of living with Covid. There is however, clear evidence of a slowdown in growth compared to Q1 as brands plan to navigate the challenges of the rising cost of living on the consumer. IPA research suggests that those that invest in order to engage with customers and help meet these challenges, are more likely to build loyalty over the longer term. 

"Finally, employment prospects remain firm with 84.4% of companies intending to maintain or add to their workforce, although the challenges of hiring, upskilling and keeping staff are still very much on the agenda in our boardrooms."

Richard Aldiss, Managing Director, McCann Manchester and IPA City Head for Manchester and the North West: 

"The growth in total marketing budgets is encouraging and a reflection of the continued adjustment of the marketing mix post-Covid with events budgets significantly increasing.

However, the stalling growth in advertising spending reflects the uncertainty of the economic and consumer climate. As we see shifts in shopper behaviour and consumers re-evaluate discretionary spending, it is a time for brands to truly listen to their customers whilst also presenting an opportunity for growth for those brands that continue to invest. For agencies, the focus must remain on creative effectiveness and the ability to adapt at pace."

For additional information, please purchase the full Q2 2022 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 subscriptions are available by contacting economics@ihsmarkit.com