• Total marketing budgets increase by a net balance of +2.1% - the slowest pace since Q1 2021

• Events remain a key avenue of marketing growth but budget cuts seen elsewhere

• Financial outlook at its most downbeat since the start of the pandemic

• Adspend forecast for 2022 revised higher to 3.7% as UK government's energy support package provides relief for households and firms

Another period of total marketing budget growth was recorded in the third quarter of 2022, reveals the latest IPA Bellwether Report, published today (20 October 2022), continuing the positive trend that began over a year ago. However, the expansion slowed for a second successive quarter as the cost-of-living crisis, soaring energy bills, weakening demand and economic uncertainty stalled business decision-making and led some companies to retrench.

According to the latest survey findings, 22.2% of companies increased their total marketing budgets in the third quarter. However, only a marginally smaller proportion of companies registered total marketing budget cuts during the third quarter (20.1%), resulting in a weak positive net balance of +2.1%. This was down from +10.8% in the previous period and its lowest seen across the current six-quarter expansion sequence.

Rising cost pressures was a principal challenge faced by UK firms in the third quarter. With energy bills and general prices for goods and services rising sharply, profit margins have ultimately been squeezed. At the same time, high inflation has caused consumers' purchasing power to deteriorate, weighing on demand. This has led some companies to retrench, with marketing budgets being reduced as a result.

Growth by category in Q3 2022

Of the seven categories of marketing spend monitored by the Bellwether report, only events saw growth in Q3, reflecting the continued appetite for face-to-face meetings and engagements in person following the lifting of COVID-19 restrictions. Even here however, growth slowed notably (net balance of +4.5%, from +22.2%)

Elsewhere, main media marketing budgets – which include big-ticket advertising campaigns relating to TV and radio – fell for the first time since Q1 2021 (net balance of -3.1%, from 0.0% previously). Within the main media category, the largest drags were published brands (net balance of -11.2%, from -2.6%) and out of home (net balance of -7.6%, from -15.9%), while audio also fell slightly (net balance of -2.0%, from -16.4%). Other online advertising (net balance of +9.3%, from +4.4%) and video (net balance of +8.7%, from +0.8%) meanwhile saw growth.

The largest downturn was once again seen in the segment containing other forms of marketing not accounted for by the survey (net balance of -10.5%, from -8.3%). Sales promotions budgets also fell, marking a second successive quarterly decrease. The net balance registering a drop in spending here fell to -7.5%, from -0.7%.

Cuts of a more modest nature were seen in the remaining segments. Public relations budgets fell for the first time in a year (net balance of -4.8%, from +3.7%), while a decrease of a similar strength was seen for market research (net balance of -4.1%, from -6.5%). Lastly, direct marketing budgets fell fractionally (net balance of -0.6%, from 0.0%).

The latest Bellwether survey signalled a broad-based deterioration in financial prospects in the second quarter.

Financial prospects fall further in anticipation of more challenging economic conditions

Compared to three months ago, the latest data signalled a stronger level of negativity among Bellwether firms towards the financial prospects of their specific industry. While 6.3% of surveyed companies were more optimistic, 50.5% were downbeat, leading to a net balance of -44.3% – the most pessimistic assessment of industry-wide financial prospects since Q2 2020.

2022 adspend growth forecast lifted slightly following energy support measures

Since the last Bellwether Report, little has changed regarding the immediate outlook for the UK economy. A recession is likely to have started in the third quarter, but the Bellwether authors S&P anticipate it being short and shallow, in part owing to the support measures provided by Government to assist households and firms with their energy bills. This relief is likely to have also helped sustain adspend into the end of the year. As a result, the Bellwether has upwardly revised its 2022 adspend forecast to 3.7%, from 1.6% previously.

Nevertheless, high inflation will continue to squeeze incomes, while weak demand in key export markets, financial market volatility and subdued corporate investment will likely weigh on real GDP in 2023. As such, S&P’s GDP growth forecast for next year has been reduced from 0.5% to 0.2%, and, as such, Bellwether adspend growth forecast has also been trimmed to 0.3% (from 0.8%). With high inflation also set to persist into next year, this will continue to dampen real rates of growth.

Beyond 2023, Bellwether adspend forecasts are little-changed since the previous report. It is slightly more bullish on adspend growth in 2024 (1.6%, from 1.4%) in part due to its expectation that a consumer-led UK recession will only be short-lived.

Commenting on the latest survey:

Paul Bainsfair, IPA Director General:

“We know from analysis of additional S&P500 data and new data from the FTSE 100 benchmarks that strong brands are a critical strategic asset that deliver value and that their budgets are an investment not a cost. Furthermore, we see from this data that strongly branded companies recover quickly after a crisis and retain their performance. We appreciate, however, that while increasing or maintaining investment in marketing during these tough economic times is generally the ideal thing for companies to do, it is not necessarily the easiest thing to do – as these latest Bellwether results imply. But there are ways around this.

“Instead of slashing budgets that can lose brands their customers’ awareness and subsequent market share, our experts would advise that after optimising their pricing and promotions strategy, which would usually include supporting with brand advertising, companies tweak their brands’ marketing budgets subject to their geography, portfolio, channels and media – all of which will have variations that can also be optimised accordingly. Equally, we’d advocate a longer-term approach that steers away from heavy sales activations which can erode brand loyalty and lose companies profit.”

Joe Hayes, Senior Economist at S&P Global Market Intelligence and author of the Bellwether Report:

"Bellwether survey data suggests that UK companies were able to squeeze out another round of marketing budget growth in the third quarter, although momentum has faded quite significantly since the first half of 2022 as the broader economic picture has darkened. Budget cuts are being seen across the majority of the monitored segments of marketing spend as companies move into retrenchment mode due to soaring costs and slowing demand. The cost-of-living crisis will continue to weigh on household earnings throughout the winter, meaning discretionary spending cutbacks are inevitable for the UK's low-to-middle income groups that are at the heart of the economy."

FOR FULL RELEASE, IMAGES AND REPORT GO TO: https://mediaselect.pa.media/ipa_bellwether_report_cost_of_living

All press enquiries, please contact:

Sylvia Wood, Head of Press Office, IPA – 07881 957294 / sylvia@ipa.co.uk

About the Bellwether Report

The Bellwether is based on a questionnaire survey of around 300 UK-based companies that provide regular quarterly information on trends in their marketing activities. The survey panel has been carefully selected to ensure that the survey data provide an accurate indication of actual marketing trends in the whole economy. Participating companies therefore include a broad variety of advertisers in terms of market sector and geographical location. The survey panel has been recruited from the nation’s top 1000 companies. Respondents are primarily marketing directors or similar. Questionnaires are dispatched to companies in the final three weeks of each calendar quarter. The full report is available to purchase from the IPA website.

About the IPA

The IPA is the professional body representing advertising, media and marketing communications agencies based in the United Kingdom. It has approximately 270 agency brands within its membership. As a membership body incorporated by Royal Charter, the IPA’s role is two-fold: to provide essential core support services to its corporate members who are key players in the industry; and to act as its members’ spokesperson.

FOR FULL RELEASE, IMAGES AND REPORT GO TO: https://mediaselect.pa.media/ipa_bellwether_report_cost_of_living

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