UK companies revise marketing budgets up but Omicron slows growth

A net balance of +6.1% of companies upwardly revised their total marketing budgets at the end of last year as recovery efforts from the pandemic continued. That said, amid the emergence of the Omicron strain of COVID-19, heavy supply-chain disruption and strong inflationary pressures, total marketing budget growth slowed from the third quarter of 2021 (net balance of +12.8%). Nevertheless, the latest data was still a robust result by comparison to recent years and signalled the second-strongest improvement since the opening quarter of 2019.

Growth by category in Q4 2021

Market research (net balance of +7.0%) was the top performing category in the latest survey period, reflecting efforts by businesses to better understand the impact that the COVID-19 pandemic has had on their existing clients and target audiences. Overall, market research enjoyed its strongest performance since this category of marketing was first tracked by Bellwether over nine years ago. Direct marketing registered the next strongest expansion in budgets, with a net balance of +3.8%, followed by main media advertising (+3.1%). Within main media, we saw growth in video (+7.3%) and other online advertising (+4.5%), but budget cuts in published brands (-5.9%), audio (-6.3%) and out of home (-8.3%). Public relations was the final main category to register in growth territory during the fourth quarter (+2.0%), as sales promotions budgets (0.0%) stagnated. Meanwhile, events (-3.9%) and other (-11.2%) marketing budgets registered cuts.

Budget plans 2022/23

Preliminary data regarding spending plans for 2022/23 suggest that marketing budgets are on track for considerable growth as businesses step up their recovery efforts from the COVID-19 pandemic. A net balance of +34.5% of surveyed companies are planning to expand their total marketing spend in the coming 2022/23 financial year. Indeed, close to half (45.7%) of Bellwether panellists were optimistic of budget growth, compared to just 11.2% expecting spending cuts.

Of the seven broad types of marketing activities, of which all registered in positive territory, events was the strongest performer, reflecting firms' expectations of looser pandemic-related restrictions. A net balance of +19.0% of surveyed companies are expecting higher events budgets in the coming financial year. Sales promotions budgets are also set for strong growth, with a net balance of +17.9% of firms planning to expand their spending here.

Main media marketing – which includes 'big-ticket' advertising campaigns relating to TV and radio – is also expected to receive strong budgetary support, as a net balance of +17.4% of firms anticipate spending growth. Finally, Direct marketing (+15.5%), other (+10.6%), PR (+9.6%) and market research (+7.4%) are also areas of marketing which businesses expect to see spending grow.

Business sentiment eases amid COVID-19 flareup, supply-chain disruption and rising inflation

Following several months of strong optimism among Bellwether companies, latest survey data showed a notable easing in sentiment at the end of 2021.

The net balance of panellists that were more optimistic towards the financial prospects of their own company fell from +37.5% in the third quarter to +7.6% in the fourth quarter. This marked the least confident outlook in own-company prospects since the net balance swung back into positive territory at the end of 2020. While 31% of respondents foresee financial improvements at their businesses, around 23% were less optimistic.

Meanwhile at the industry-wide level, surveyed firms were more pessimistic towards the financial outlook compared to three months ago. Close to 28% of companies were downbeat, more than offsetting the 24% of respondents who had grown in confidence. The resulting net balance of -3.8% was the first negative reading since the fourth quarter of 2020.

2022 adspend forecast lowered, but strong growth still anticipated

Since the last survey, the Bellwether has downgraded its forecast for 2022 UK GDP growth. Although at the time of writing, the UK has fallen short of implementing any form of lockdown restrictions, the rapid spread of the Omicron variant has had a notable impact on consumer confidence and activity within parts of the economy, particularly the hospitality and leisure sector. Rising inflation, which is damaging purchasing power, disrupted supply chains, as well as issues with recruitment due to shortages of suitably-skilled and available staff have also presented fresh risks to growth. Consequently, Bellwether has lowered its annual adspend growth forecast to a still-strong 5.2%, from 6.2%.

From 2023 onwards, Bellwether expects more modest rates of growth as momentum from the economic recovery peters out. We anticipate GDP growth to slow in 2023 and 2024 and forecast annual expansions of 1.8% and 0.9% respectively, in part reflecting the impact that rising tax burdens will have on consumption levels, as well as tightening interest rates.

Regarding adspend, 2023 growth is forecast at 2.5% (vs. 2.4% previously), and 1.3%, 2.3% and 2.5% in 2024, 2025 and 2026 respectively.

Commenting on the latest survey:

Paul Bainsfair, Director General, IPA:

"It is very welcome news that UK marketing budgets continue to be revised upwards. As we can see, however, Omicron has heightened uncertainty, altered consumer behaviour and subsequently impacted UK companies’ marketing budget decision making. Going forward, new variants – alongside supply chain issues and heightened inflation - may indeed induce further wobbles. The key for businesses to weather these fluctuations will be, where possible, to invest in the longer-term and in brand-building media. As the evidence proves, brands that continue to invest in their marketing throughout the toughest of times come out on top."

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

"It's encouraging to see another quarter of marketing budget growth, despite the numerous headwinds businesses faced at the end of 2021. The emergence of the Omicron variant saw a modest tightening of restrictions across the UK, but some key overseas markets, such as those in the EU, saw more stringent measures. On balance however, it appears that many companies are doing their best to adapt to the "new normal". That said, the overall expansion did slow amid sharp inflationary pressures. Another risk to businesses is rising cost burdens, which have been inflated by higher energy and transport prices, increasing wages and raw material shortages, and has inevitably led to some belt-tightening. Regardless, firms are pressing ahead with their bullish spending plans as close to half (45.7%) of Bellwether panellists expect to increase marketing budgets in the coming year."

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

"The Q4 results offer greater scope for our industry in 2022. Pleasingly, Northern Ireland’s economic recovery is keep pacing with the rest of the UK, despite the economic and societal headwinds of the past 21 month as can be evidenced the growth of marketing budgets, new business opportunities and new market entrants. However, the sustained high COVID-19 case levels, rapidly rising inflation, and the reintroduction of restrictions on hospitality and travel presents challenges for key business sectors and client budgets. The ingenuity and resilience of our agencies will be required again as further challenges emerge in 2022. A combination of rising prices, talent shortages, a need to move more urgently on environmental matters and the persistence of COVID-19 suggest economic growth will be hard-earned."

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

"Despite growth in Q4, it’s evident that Covid variants and related supply chain issues have slowed things down, along with further disruptions such as rising wage bills and shortage of suitably-skilled workers.  It’s very good to hear that marketing budgets for 2022/23 are still expected to see growth, as now is not the time to pull back.  Research shows that brands who push forward and increase their share of voice during an economic crisis will reap the rewards in sales, profits and long-term benefits."

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

"Q3 2021 saw budgets revised to the largest extent in over 4 years, so it’s not surprising that with the onset of omicron and the ongoing supply chain issues that this dipped in Q4 – and it’s extremely heartening that main media budgets still increased. Throughout 2021 we saw video increase at a greater rate than other channels, and this is where it stayed in Q4, with other online continuing to sit in second place – a reflection of the ongoing commitment of advertisers to building strong brands, alongside supporting performance and ecommerce. With growth increasing in 2022, the future looks bright."

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

"There is no doubt that there is still a great deal of economic uncertainty, the ricocheting effects of Omicron in Q4 are good evidence of this as demonstrated in the report.

However, Covid-19 has also acted as an accelerant for positive change, so let’s continue to build on this and look forward with optimism and energy. 

We are in challenging but indeed inspiring times and we will continue to see great innovation over the next 12 months. The current landscape provides a host of opportunities for creative businesses.

It’s good to read that marketing budgets continue to be revised upwards. As a sector we need to be match-fit if we are to respond quickly and tactfully and stay one step ahead of the emerging conscious consumer."

Patrick Reid, Group CEO, Imagination:

"The emergence of the Omicron variant introduced a further element of uncertainty in this quarter, which along with supply-chain disruption unsurprisingly impacted on activity.  However, the future looks positive with 38% of Bellwether respondents expecting to increase their budgets in events and experiences with marketing executives anticipating a much stronger 2022/23 - something we’ve witnessed across our global client portfolio. We strongly believe as economies recover there will be increasing opportunities to create meaningful experiences that provide ROI and increase the lifetime value of customers – be that virtual, hybrid or in person."

David Fletcher, Chief Data Officer, Wavemaker UK:

"The latest IPA Bellwether data point shows the same positive revisions to current budgets for Market Research as they do for Total budget revisions and it is difficult to understate the significance of this.   You have to go back almost a decade – to the very early days of the IPA breaking out Market Research in the Bellwether survey to find the last time that research has done anything other than flatline or decline relative to aggregate revisions.

"So it’s not before time for research but also full of new opportunity.  Advertisers may well have felt that there’s enough in the immediate return paths facilitated by digital footprints not to need as much research to keep a handle on current performance.  But the myriad changes in behaviour – from mainstream on-demand access to last mile delivery businesses and the emerging challenges and opportunities of virtual technologies combine in a need for deep and real insight to help advertisers navigate long-term strategies."

For additional information, please purchase the full Q4 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