Upward revisions to main media budgets drive total UK marketing budget growth

The Q3 2023 Bellwether report also reveals that there was, however, a moderation of the upturn as persistent inflationary pressures, further increases in borrowing costs and a subsequent deterioration in the UK economic outlook drove some companies to be more cautious with their budgets.

While 21.1% of Bellwether firms increased their total marketing spending in the three months to October, a sizeable 15.8% registered a downgraded budget. This resulted in a net balance of +5.3%, pointing to the weakest quarter of total marketing budget growth since the final quarter of 2022 (down from +6.4% in Q2).

Growth by category in Q3 2023

According to panel members that registered growth, marketing activities were deployed both as a defensive and offensive manoeuvre, with some hoping to reinforce their brand's position in the market ahead of a downturn in the UK economy. Efforts to seize additional market share was seen at companies who were seeing key competitors prioritise short-term cost-savings over long-term business growth.

Supporting this, the main media advertising category was the strongest-performing segment of the Bellwether survey in Q3 as a robust net balance of +7.4% of companies upwardly revised spending in this crucial segment at the strongest rate in a year-and-a-half (-2.5% previously). This contrasted markedly with the Q2 report, where sales promotions budgets drove the upturn as cost-of-living pressures drove companies to provide support to cash-strapped customers. Within main media, other online advertising methods that aren't captured by the other sub-categories rose sharply (net balance of +9.1%, vs. +8.3% previously) as companies engaged with new innovative tools such as artificial intelligence. Video (+0.9%, from +3.2%) and published brands (+0.8%, from -5.0%) were the other areas of expansion within main media, whereas audio (-10.8%, from -8.0%) and out of home (-12.1%, from -7.1%) saw contractions accelerate.

Events continued to be an area of marketing budget growth in the third quarter, continuing its strong sequence of expansion seen in every Bellwether Report since the opening quarter of 2022. A net balance of +5.9% of companies saw an increase in spending in this area (from +9.8%), with anecdotal evidence indicating a resilient appetite for engagement with clients and prospects face-to-face.

Other areas of budget growth included direct marketing (net balance of +4.3%, from +7.3%) and public relations (+4.0, from -1.9%). In fact, PR spending rose at the strongest pace in five years.

Meanwhile, spending cuts were recorded in the final three segments of the Bellwether survey. Other modes of marketing activity not accounted for continued to see budgets cut in the third quarter (net balance of -7.9%, from -6.8%), as did market research (-1.5%, from -2.9%). Notably, after a record expansion in the previous quarter, the latest data indicated a renewed reduction in sales promotions spending (-1.5%, from +13.4%).

Financial prospects at industry-wide and company-own level remain subdued

There was little material change in company-own and industry-wide financial prospects during the third quarter of 2023, latest Bellwether data showed, with sentiment among respondents remaining generally subdued.

When assessing the financial prospects for their own business, Bellwether firms were optimistic, albeit only modestly, with a net balance of +5.2% of companies reporting stronger sentiment than three months ago. Positively, just over a quarter (25.4%) of respondents were more upbeat on their financial outlook. This was offset considerably, however, as 20.2% signalled weaker confidence. The vast majority of companies (54.3%) reported no change in their assessment of financial prospects. Nevertheless, the latest data marked an improvement compared with the second quarter, when a net balance of just +2.6% registered more upbeat expectations.

In contrast, the industry-wide outlook remained negative during the third quarter, with the proportion of panellists that were downbeat towards the outlook for their sector (24.9%) over double the proportion who were positive (12.1%). The resulting net balance of -12.7% was little-changed from the previous quarter (net balance of -12.6%) and signalled the greatest degree of negativity towards overall industry financial prospects in the year-to-date.

UK economy set for shallow recession, with adspend expected to fall in 2023 and 2024

According to report author’s S&P Global Market Intelligence's latest forecast, the UK economy will expand in 2023 by 0.3%, an unchanged estimate from the previous Bellwether Report. It has, however, downwardly revised its growth forecast for 2024 to -0.1%, from 0.4% previously. The 2023-24 growth outlook is lacklustre as the full impact of the Bank of England's interest rates rises has yet to materialise and inflationary pressures remain elevated. As such, S&P Global expect the UK economy to endure a shallow recession over this period. Subsequently, for Bellwether, it anticipates contractions in adspend of -0.6% and -0.4% in 2023 and 2024 respectively.

It won't be until 2025 that S&P Global forecast adspend to grow again in real terms, according to this October forecast, with expectations for a modest recovery of 1.3% in annual growth terms as the UK economy picks up. It is currently predicting GDP growth of 0.9% in 2025, with a further improvement in 2026 as economic growth strengthens to 1.4% on a year-on-year basis. for 2026 and beyond. As a result of this, for the Bellwether Report, S&P Global anticipates annual adspend growth accelerating back to a solid trend of 2.0%.

Commenting on the latest survey:

Paul Bainsfair, Director General, IPA:

"Against a backdrop of economic stagnation and ongoing elevated levels of inflation in the UK, coupled with increasing global geo-political volatility, the trading environment for companies is unquestionably tough. But instead of seeing a re-run of last quarter’s slightly concerning results where companies revised up their short-term sales promotional activity to record amounts while reducing their main media spend, this time we are buoyed to see a more considered, reverse state of affairs.

"This quarter, those companies that can are heeding the evidence that in general, investing more in main media will help to steady them through the uncertain times and help to ensure the longer-term health and profitability of their brands."

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

"As storm clouds gather over the UK economy, it's encouraging to see total marketing budgets hold firm in expansion territory. We saw last quarter that firms had become concerned by persistence of the cost-of-living crisis, which drove a record rise in sales promotions spending. In the latest quarter, however, firms have gone back to brand-building, with anecdotal evidence suggesting that this move has been made both defensively and offensively. With demand conditions coming under pressure, companies will have to position themselves strongly to stand out from their competitors."

Says Helen Blakley, Managing Director, Genesis and IPA Chair for Northern Ireland: 

"Set against the continued economic uncertainty and global political instability, it remains an interesting and challenging time ahead for our industry. It is encouraging to see a +7.4% for main media advertising in this quarter recognising the need to invest in brands as we move towards the end of the financial year and to help protect and grow future market share."

"Locally the need to seamlessly integrate paid activity with client owned activity continues to become even more important to drive profitable growth and performance."

Says Richard Aldiss, Managing Director, McCann Manchester and IPA Chair for England & Wales: 

"This quarter’s Bellwether Report brings focus to those brands that are pro-actively navigating the current economic climate with an increase in main media marketing investment, an eye on stealing market share and a focus on customer loyalty.  

"Advances in technology (AI), and sustainability goals are also unlocking opportunities in products and services, further fuelling the need and benefit of longer-term, strategic planning. It remains a challenge for businesses and marketeers, to balance the needs of today whilst also looking beyond tomorrow to capitalise on the opportunities a future-facing strategy presents."

Says Brian Coane, Partner, Leith and former IPA Chair for Scotland: 

"Worryingly, the latest report shows that overall adspend will not grow again until 2025 and this is reflected in the current lacklustre economy in Scotland for businesses and agencies. But the survey also indicates that brands are moving to activity, such as events, to build relationships with their customers and more long-term forms of marketing. This is the right direction to go in, combined with creativity, to increase marketing effectiveness as times continue to be tough."

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

"While the market research industry has faced some challenges, the latest data shows a promising trend. The net balance improvement from -2.9% to -1.5% is the best we've seen since 2021, indicating a positive shift. This resilience, coupled with the fact that the decline was in line with expectations, gives us confidence in the industry's ability to navigate these uncertain times and continue to provide valuable insights for business."

Says Sean Feast, Co-Founder and Director, Gravity Global:

"It would be a fool to say that we’re not living in challenging times, with a number of well-publicised headwinds, but it would be equally foolish to pack up and go home as there is plenty to look forward to. The revisions upwards or downwards as recorded in this latest report are a fair reflection of our own experience - some clients are particularly bullish with regards 2024 and their budgets reflect this; others are being more conservative, perhaps taking a more ‘wait and see’ approach to the next 12 months."

Says Patrick Reid, Group CEO, Imagination:

"It's encouraging to see the continued resilience of the events sector, with marketing budgets increasing for the seventh consecutive quarter. It illustrates marketers' understanding of the power of in-person elements within hybrid brand experiences, as well as the increased emphasis on using experiences to reach existing and new potential customers creating meaningful engagements and driving brand loyalty. However, growth in this sector was the slowest since the end of 2022, with a net balance of +5.9%, down from the previous quarter's one-year high of +9.8%."

Says Alex Uprichard, Managing Director, IMA-HOME and IPA City Head for Leeds, Yorkshire and Humberside: 

"The Q3 2023 Bellwether Report suggests a more considered approach to our circumstances is emerging. Main media advertising and events budgets are increasing, reflecting a desire to steal competitor market share through brand building and driving loyalty with face-to-face experiences. Sales promotions are reducing, indicating tactical short termism is beginning to scale back. At the same time, businesses are seeking efficiency and innovation, for example via AI and technological solutions. There is also increased interest in purpose driven business models - with sustainability moving up the agenda. 

Says James Ray, CEO, Armadillo and IPA City Head for Bristol, Cardiff and the South West: 

"For me, this quarter’s IPA Bellwether Report points to our industry adjusting to a more long-term approach to meeting challenging economic conditions, which look set to last in to 2024 and possibly beyond. Marketing budget growth in Q3, a shift back to brand building and away from the peaks of sales promotion seen in Q2, and an uptick in direct marketing spend all point to brands investing hard in securing long term loyalty from hard-pressed consumers."

Says Sue Benson, Managing Director, The Behaviours Agency and IPA City Head for Manchester and the North West:  

"The IPA Bellwether report pretty much mirrors what we’re seeing in the North West. There’s still an underlying sense of nervousness in marketing departments, however some clients are taking the opportunity to drive share whilst others are taking bottom line savings.  

"It’s making for difficult trading conditions for many agencies, we’re in two steps forward one step back land, with sales pipelines the shortest we’ve ever experienced. With Black Friday and Christmas trading a matter of weeks away it will be interesting to see how retailers and brands execute their strategies in these tricky conditions."

Says Kieron Goldsborough, CEO, Different Narrative and IPA City Head for Newcastle & North East: 

"As ever the IPA Bellwether Report makes fascinating reading and sheds light on the key trends of the industry during Q3 of 2023. The report as ever contains a huge amount of data and shows that main media marketing budgets rose at their strongest rate since Q1 2021. Interestingly, spends have seen a move back to longer term brand building rather than the short-term sales promotions that we so prevalent in the previous quarter.