UK marketing budgets have been revised upward for the third successive quarter, but the Omicron variant of COVID-19, supply chain issues, and inflation concerns have slowed growth, according to the latest IPA Bellwether Report.
A net balance of +6.1%, of the 300 UK-based companies surveyed, upwardly revised their total marketing budgets at the end of 2021. This was down on the +12.8% recorded in the third quarter of 2021, though still represents the second-best growth since the start of 2019.
The market research category enjoyed its biggest growth since tracking began on it over nine years ago. A net balance of +7% was recorded, as marketers attempt to gain a deeper understand of the impact of the pandemic on their clients and audiences. This was followed by direct marketing (+3.8%) and main media advertising (+3.1%). Breaking down the latter, there was growth for video (+7.3%) and other online advertising (+4.5%), but published brands (-5.9%), audio (-6.3%), and out-of-home (-8.3%) were all down.
The final main category to register growth was public relations, which achieved a net balance of +2%. Elsewhere, sales promotions budgets were flat, while events (-3.9%) and other (-11.2%) budgets experienced cuts.
“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’,” said Joe Hayes, Senior Economist at IHS Markit and author of the IPA Bellwether Report.
“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.”
In the coming financial year, 45.7% of companies surveyed said they were optimistic of budget growth, versus just 11.2% which are expecting cuts. Furthermore, all seven of the broad marketing categories in the Bellwether Report registered positive expectations.
+19% of companies are expecting their events budgets to grow in the 2022-2023 financial year, as pandemic-related restrictions ease. Meanwhile, +17.9% of businesses are planning to increase spending on sales promotions, and +17.4% on main media marketing. The remaining categories of direct marketing (+15.5%), other (+10.6%), PR (+9.6%), and market research (+7.4%) are all also set for strong growth.
Despite this, businesses are now less optimistic about their own financial prospects, falling from +37.5% in Q3 2021 to +7.6% in Q4 2021 – which is the least optimistic that companies have been for a year.
At an industry-wide level, the sentiment is even worse, with a net balance of -3.8% of firms feeling pessimistic about the industry’s financial prospects, representing the first negative reading since the end of 2020.
The predictions of the IPA and IHS Markit have also taken a hit, lowering their Bellwether annual ad spend growth forecast from 6.2% to 5.2%, pointing to the impact of Omicron on consumer confidence, as well as rising inflation, disrupted supply chains, and issues with recruitment.
Looking further ahead, Bellwether predicts GDP growth to slow to 1.8% in 2023 and 0.9% in 2024, as rising tax and tightening interest rates make their mark. On the ad spend front, growth is forecast to be 2.5% in 2023, 1.3% in 2024, 2.3% in 2025, and 2.5% in 2026.
“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,” said Paul Bainsfair, IPA Director General. “Going forward, new variants – alongside supply chain issues and heightened inflation – may indeed induce further wobbles. They 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.”