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UK ad spend continues to grow, but inflation could provide blow in near future

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UK advertising spend grew for the ninth consecutive quarter in Q3 2022, rising 4.3% to reach £8.5 billion, as the industry continues to show resilience in the wake of the COVID-19 pandemic and during the ongoing economic crisis.

According to the latest Advertising Association/WARC Expenditure Report, cinema (148.1%) and out-of-home (13.2%) continued their strong recoveries, after the struggles both channels encountered during the pandemic. Search rose 7.7% and equated to almost 40% of total ad spend during the quarter. Meanwhile, social media – which is included within online display – was up 4.4%, and broadcast video on-demand rose 4.3%.

“The UK advertising industry has held firm in its continued recovery from the COVID pandemic, with ad investment holding up in the face of significant headwinds. However, the economic pressures of 2022 including high inflation’s impacts on the wider economy and on media costs means in real terms spend is likely to be flat. These pressures all contribute to slower growth projections for the year ahead,” said Stephen Woodford, Chief Executive at Advertising Association.

“Advertising plays a vital role in helping brands communicate with their customers and navigate the cost-of-living pressures that everyone faces. As we publish our new 3-year strategy which puts trusted, inclusive and sustainable advertising at the heart of our mission, we are determined to show the economic and social value of responsible advertising to the UK.”

Across the first nine months of 2022, overall ad spend growth was up by 10.8%, with the total figure reaching £25.3 billion for the period.

For the year as a whole, it’s estimated that growth will finish at 8.8%, reaching £34.7 billion, but representing a slight downgrade (-0.4 percentage points) from the previous prediction. This is expected to be made up of a £9.5 billion total spend for the fourth quarter – a growth of 4%.

Looking ahead, 2023 is expected to see a full-year growth of 3.8%, totalling £36.1 billion. However, despite there being growth on paper, this figure will represent a 3% decline in real terms, once inflation is accounted for.

“With the economy enjoying modest growth in November, and inflation appearing to have reached its peak, it is likely that the UK narrowly avoided slipping into the recession at the end of last year that many had feared – but a downturn now seems unavoidable in 2023,” said James McDonald, Director of Data, Intelligence & Forecasting at WARC.

“Despite an air of resilience in recent market results, a looming recession will put pressure on ad trade this year. We foresee ad market growth easing to 3.8%, equating to a real terms decline and the weakest rise in a decade if the pandemic-hit 2020 were excluded. The silver lining here is that our current modelling suggests that the slump will be short lived, with advertising investment set to lift by 5% over the first nine months of 2024.”