Interviews, insight & analysis on digital media & marketing

UK marketing budgets continue to shrink, but future is bright

UK marketing budgets continued to fall in the opening quarter of 2021, as the ongoing COVID-19 lockdown restrictions forced businesses to further look at reducing costs amid decreased economic activity, according to the latest IPA Bellwether Report. But, for the third quarter in a row, downward movement lessened.

A net balance of -11.5% of Bellwether survey panellists reported a reduction in their marketing budgets in Q1 2021, compared to the -24% recorded in the final quarter of 2020. Overall, 25.7% of the around 300 UK-based companies surveyed saw a decrease in available funds, with 14.2% noting an increase.

When broken down into the Bellwether’s seven monitored marketing categories, Events was once again the hardest hit. However, the net balance of firms reporting a contraction in the category improved to -43.2% from -62.9% in Q4 2020. Elsewhere, Market Research (-17.8%), Sales Promotions (-16.2%), Other (-14.7%), Direct Marketing (-11.8%), Main Media (-8.2%), and Public Relations (-8.0%) all also continued on their downward trajectories.

A positive future

Looking forward, the general consensus is that budgets will recover in the next financial year, with a net balance of +17.4% of businesses expecting their total marketing budgets to increase over the next 12 months. Much of this higher expenditure is expected within Main Media advertising, where +10.1% of firms predict growth. Meanwhile, Public Relations (+7.4%) and Direct Marketing (+6.8%) are there only other areas where a rise in budget is anticipated.

For the first time since the end of 2015, the Bellwether panellists were optimistic about industry-wide financial prospects. Overall, 41.2% feel positive about the industry-wide outlook compared to three months ago, while just 15% are on the pessimistic side of the fence.

On their own-company financial prospects, businesses continue to be increasingly upbeat. A net balance of +36.6% are confident of an improvement in their own financial prospects – the strongest level of optimism for six years.

With the ongoing success of the UK’s COVID-19 vaccine rollout and, alongside that, the relaxing of lockdown restrictions, IHS Markit forecasts a 3.5% expansion of GDP in 2021, followed by a growth of 5.8% in 2022. On the ad spend front, the Bellwether author predicts increases of 3.5% and 6.9% in 2021 and 2022, respectively.

“Despite remaining in negative territory overall, the vital signs from this quarter’s Bellwether Report are looking ‘V’ encouraging for a bounce back in UK marketing investment,” said Paul Bainsfair, IPA Director General. “With companies’ confidence levels regarding their financial prospects soaring and with almost three quarters of UK companies either revising their marketing budgets upwards or keeping them the same this quarter versus last, the trajectory is very much moving in a positive direction and at a good pace.

“As the nation comes out of lockdown consumers will be actively seeking out new products, experiences and entertainment, for which it will be more important than ever for companies to build and rebuild their brand awareness.”

Elliot Kerr, Economist at IHS Markit and author of the Bellwether Report, added, “Although marketing budgets continued to decline at a marked pace amid ongoing COVID-19 restrictions, it was positive to see a further trend towards stabilisation. Meanwhile, upbeat forecasts from UK marketers for the coming financial year, after the marked reduction in budgets through 2020, bolsters expectations for a post-pandemic recovery and bodes well for the UK economy.

“Without a doubt, the improvement in budget plans from the previous survey period will have been supported by the release of the UK governments roadmap to relaxing restrictions. It has allowed businesses to look beyond the current climate and begin to build towards a time when demand will recover. If all goes to plan, a strong economic recovery should see ad spending rise sharply in the second half of the year.”

Here’s how the industry reacted to the news