‘Relentless’ digital growth boosts UK marketing budgets

Marketers continue to display a noticeable drive towards digital-based advertising, according to the latest IPA Bellwether, however budgets for main media advertising begin to recover after a bumpy start to the year.

UK marketers revised their internet budgets up to the joint-strongest levels in 11 years during the second quarter of 2018, according to the IPA’s latest Bellwether report, marking nine years of consecutive upward revisions to this category and boosting overall growth to marketing budgets.

Marketers displayed a noticeable drive towards digital-based advertising in Q2, with the net balance of firms (+22.7%) reporting upward revisions to their internet marketing budgets – a significant increase on Q1’s +8.7%.

It is the 35th consecutive quarter (since Q3 2009) that marketers have made upward revisions to their internet budgets. Within the broad internet category, spending plans for search/SEO marketing also rose from +5.6% in Q1 to +11% this quarter.

These strong upward revisions have had a slight positive impact on the overall figures for UK companies’ marketing budgets; however, the pace remains slow.

Nearly a quarter (23%) of panellists indicated higher spending plans for overall marketing activity during Q2, while just 17% pointed to lower budgets, resulting in a score of +6.5%. This is up from Q1’s two-year low of +5% but it is still the second lowest reading since Q1 2016.

Meanwhile, main media advertising, which includes big-ticket campaigns related to TV, radio and cinema, moved back into positive territory after slipping into the red last quarter for only the second time in five years, with a net balance of +4.9% in Q2.

Modest upward revisions were also noted for both events (+4.3%) and sales promotion (+4%).

Elsewhere, budgets for direct marketing, which includes email and telemarketing, were revised lower in the second quarter amid recent GDPR changes. The latest -3.2% net balance extends the period of direct marketing budget cuts to three years.

Other categories monitored by the Bellwether survey to endure downward budget revisions during the second quarter are market research (-7.2%), PR (- 6.5%) and ‘other’ (-10.3%).

Financial prospects and ad spend

Businesses maintained a positive outlook towards their own finances during the second quarter of 2018, with a net balance of +13.3% of firms saying they are optimistic, fractionally higher than in the first quarter (+13.1%) and the greatest level of optimism since Q1 2017.

Confidence towards wider industry financial prospects is lacking at -9%, however, although this is up from -13.6% in the last quarter.

Following a slight upward revision to the official Q1 GDP quarterly growth figure, expectations are for a bounce back in Q2. As such, the Bellwether report predicts a greater degree of optimism towards ad spend growth for 2018 and 2019 than it previously forecast.

Growth for the year as a whole is expected to come in at around 1.1% (revised from 0.8%), while 2019 growth has also been upwardly revised to 0.7% (from 0.4%).

“At a time when industry-wide financial prospects are deteriorating, the continued increase in advertising spend offers a positive development,” says Joe Hayes, economist at IHS Markit and author of the report.

“However, the latest growth is partly defensive in nature. Margins are being tested by increasing competition and firms are raising budgets largely to sustain market share and profits.

“Since the forecast for the 2018/19 financial year made last quarter, which indicated the lowest growth in total marketing budgets for five years, the impasse in Brexit negotiations, combined with panellists reports of rising costs, provide clear downside risks to spending available to marketing executives.”