Marketing budgets make surprise return to growth

Marketers increased marketing spend in the first quarter as they look to protect their brands amid rising uncertainty, but the growth is not expected to last.

UK companies revised their marketing budgets up markedly in the first quarter of 2019, a stark contrast to the final quarter of 2018 when spend stagnated, as they made efforts to protect their brands amid ongoing economic uncertainty.

According to the quarterly IPA Bellwether, a net balance of 8.7% of marketing executives reported increasing their budgets, up from 0% in the final three months of 2018 and the highest level since Q3 2017. More than a fifth (21.6%) reported spending growth, while 12.8% said budgets had been cut.

The internet was once again the best performing category, with the net balance of those increasing spend jumping to 17.2%, up from 2.1% in the prior quarter. In particular, search/SEO saw a swing from cuts of -3.9% in Q4 2018 to growth of 14.2% last quarter.

There was also a renewed drive for big-ticket ad campaigns with a net balance of 5.2% of marketers increasing spend, a turnaround from the 6.2% decline in the prior quarter. Events also saw expenditure growth of 3.4%.

However, sales promotions, market research and direct marketing budgets all took a hit, while PR spend was reported as flat.

READ MORE: Marketers taking ‘more cautious’ approach to hiring

Paul Bainsfair, IPA director general, says: “This sharp increase following Q4 2018’s flatlining signals that UK marketing budgets have received a much-needed kiss of life in an economy gripped by Brexit uncertainty. The smart marketers realise that to grow their businesses, they must invest in them, particularly in mass reach, long-term media.

“While the forecast for the year ahead remains uncertain given the seemingly endless Brexit negotiations, those that want real competitive advantage should follow the proven rule that if you increase your share of voice above your share of market, you should expect to experience growth.”

Despite the uptick, marketers are still erring on the side of caution with forecast for marketing spend in the 2019/20 financial year. A net balance of just 3.4% expect budget growth, down from 18% who expected growth for 2017/18 and the lowest level since 2009.

Main media and events are both expected to see growth, with brand building initiatives put in place in the first quarter continuing in the coming financial year. However, there was a negative outlook for other marketing, PR, sales promotions, market research and direct marketing.

This negative outlook is shown in the downbeat outlook respondents have for their own company’s financial prospects, with a net balance of 2.7% saying they are pessimistic about the future. Industry-wide financial prospects are also negative, with a net balance of 22.6% saying they are pessimistic.

Given this negativity, and the Office for Budget Responsibility (OBR) downgrading its growth projections for the UK by 0.4 percentage points since October, the IPA has cut its forecast for ad industry growth this year. It is now forecasting a modest 1.1% annual increase in ad spend in 2019, down from a previous estimate of 1.3%.

“Our downgrade reflects the challenging environment caused by Brexit uncertainty, slowing global growth and rising competitive pressures,” says the report.

However, with the OBR increasing forecasts for consumer spending and capital expenditure between 2020 and 2023, the IPA has also increased its forecasts. It is now expecting growth of 1.8% in 2020, rising to 3.1% in 2023.