Economist Paul Smith: Marketers are shrugging off Brexit uncertainty

UK marketing executives enjoyed their best quarter for over two years in the first three months after June’s surprise vote to leave the European Union, and are expecting ongoing growth will lead to a further rise in employment at their companies.

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The latest Bellwether Report, a survey of around 300 UK marketing professionals and produced for the IPA by Markit, showed that a net balance of +13.4% of companies enjoyed growth in their marketing budgets in the third quarter of 2016. That was an improvement on the second quarter’s +10.7%, and the highest level since Q2 2014.

Read more: Brexit set to be a rollercoaster for marketing budgets and jobs

Given the increasingly influential role that advertising, marketing, and the wider creative industries play in driving British output growth – advertising and marketing gross value added expanded by nearly 60% between 2008 and 2014, making the sector one of the hottest growth sectors in the UK – the latest Bellwether provides welcome news at a time when the country is grappling with heightened economic and political uncertainty following the Brexit vote.

Anecdotal evidence from the survey also suggests that companies are seeing fresh opportunities around Brexit, perhaps willing to commit new marketing resources to maintain brand awareness and competitiveness particularly in overseas markets. Moreover, the depreciation of the pound gives the possibility of heightened tourism from both domestic and overseas visitors. Companies are subsequently boosting marketing budgets in an attempt to capture this potential uplift in demand.

Of course, any demand boost from a weaker pound may prove transitory in nature, and some marketing executives – particularly those in the retail sector – are concerned that sterling depreciation will force import costs higher, raise general inflation and lead to a deterioration in consumer spending power.

There is also some inevitable concern over the exact terms of the deal that Britain will be able to strike with the EU, such as access to the single market, and these worries are likely to weigh on marketing spend and wider investment while negotiations take place. For this reason, we’re currently forecasting a modest dip in overall adspend in 2017 (-0.7%), following modest growth in 2016 as a whole (+1.9%).

“For now, however, companies are trying to look through the noise of ‘Brexit’ and are planning to boost staffing numbers to meet current and expected business requirements.”

Paul Smith, senior economist, IHS Markit

This was highlighted by our exclusive question for Marketing Week, where our panellists were asked about their company recruitment plans over the coming three months.

While around 30% of the panel expect to see employment rise, just 13.0% are forecasting a fall, providing a net balance of +16.4% and a reading indicative of solid growth.

However, growth may be curtailed by reported difficulties in recruiting and retaining high quality staff, an issue that may be further exacerbated if the UK chooses to pursue a ‘hard’ Brexit and significantly reduce the ability of businesses to recruit from the EU labour pool.

Paul Smith is senior economist at IHS Markit and author of the Bellwether Report.

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