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UK ad spend continues to recover, but inflation is putting strain on future growth

UK ad spend has continued its strong recovery from the pandemic, growing 28.3% year-on-year to reach a total of £8.6 billion in the first quarter of 2022, according to the latest Advertising Association/WARC Expenditure Report. However, economic pressures are putting strain on continued growth.

Online formats – in particular search, display (including social), and classified – grew the most in absolute terms, with the market share growing 74.9% for online channels combined. Meanwhile, the out-of-home and cinema sectors recorded triple and quad-digital recoveries respectively. And the publishing and direct mail sectors also enjoyed strong growth.

“The latest survey data show that the UK’s ad market is currently experiencing a soft landing from the turmoil caused by the Covid outbreak, with early budget commitments translating into a strong start to the year for the industry – all media recorded growth in the first quarter,” said James McDonald, Director of Data, Intelligence & Forecasting at WARC.

Thanks to the strong showing in Q1 – one which was 7.7 percentage points above the report’s previous forecast – the outlook for the total advertising market in 2022 has been upgraded to 10.9% growth, reaching a high of £35.4 billion. Within this, online advertising is on course to account for 74.3% all spend this year, up from 73.5% in 2021.

Despite encouraging growth on the face of it, real-terms growth of the UK’s ad market is set to be just 1.8% this year, when accounting for inflation. And this inflationary pressure is expected to continue into 2023.

The latest Expenditure Report predicts that the market will grow by a further 4.4% in 2023 to £37 billion. However, this would represent a 0.9% contraction in real terms.

“It is encouraging to see growth in our industry over Q1, as the economy continues its recovery year-on-year following last year’s Covid-19 lockdown. However, the pressures of inflation on living standards and economic growth are at the top of everyone’s mind, and these rising costs may represent a real-term contraction of nearly 1% in 2023 for UK advertising investment,” said Stephen Woodford, CEO of Advertising Association.

“As the UK’s political leadership changes, it is important to recognise the value that advertising brings to the economy in supporting competition, innovation and growth at this critical time. A consistent, evidence-led policy-making approach, with due consideration of industry views and expertise, will help create the conditions which encourage, not hinder, economic growth and will be integral to the ability for businesses to weather the challenges of the coming year. Together with WARC, we will continue to monitor advertising expenditure results and provide guidance for our industry and policy decision-makers within the UK government.”