Marketers loosen reins on marketing budgets as political uncertainty eases

Marketing budgets returned to growth in the final quarter of 2019, signalling fresh signs of optimism as Britain closed its latest chapter of political uncertainty.

Data from the IPA’s Bellwether report shows a net balance of 4% of UK companies increased their marketing budgets in the fourth quarter of 2019, bringing to an end a year of stagnant growth where uncertainty, client hesitancy and weak confidence resulted in a subdued business climate and delayed decision making.

Q4’s increase was the strongest expansion since the beginning of 2019 and a marked improvement on the 0.5% decline recorded in the third quarter. Approximately 23% of companies saw budget growth, while 19% reported cuts and 58% said there was no change to spending allocation.

Internet saw the biggest proportion of marketers increasing spend, at a net balance of 7.9%, while there there was a marginal increase for main media advertising budgets, at a net balance of 0.5%.

Main media is expected to see a bigger jump in 2020, with a net balance of 6.3% of marketers saying spend across TV, radio, outdoor and print will increase.

All remaining segments recorded more marketers planning to cut spend than increase, led by market research on -13.2%, followed by direct marketing on -7.7%, PR on -7.1%, sales promotions on -3% and events, which were down 1.1%.

Breakdown of revisions to current marketing budgets

A renewed sense of optimism

The survey points to a promising year ahead, with a net balance of 15.7% of companies expecting their total marketing budgets to be upwardly revised in 2020/21. This is a vast improvement on the 2019/20 forecast of just 3.4%.

Events marketing is expected to be the strongest area with, 11.9% of marketers overall anticipating growth, followed by main media advertising (6.3%) and sales promotions (2%). Market research, however, is expected to continue to see a downward revision to budgets of 5.7%.

While marketers continue to be pessimistic about the financial prospects of their industry, they are feeling slightly more upbeat about their company’s own financial prospects.

Some 33.7% of businesses felt downbeat about industry-wide financial prospects in Q4 compared with just 12.7% reporting an optimistic view, resulting in a net balance of -21%.

In contrast, a net balance of 1% of firms anticipate growth for their business, marking the first time since the third quarter of 2018 that Bellwether panellists have been optimistic overall, and a notable improvement on the -9.4% recorded in Q3.

Looking towards the coming year, Bellwether believes conditions for marketing spend have become notably more favourable, bolstered by robust preliminary budget plans for 2020/21. As such, Bellwether predicts annual ad spend will grow through to 2021, up 1.8% this year, 2% in 2021, 2.2% in 2022 and 3.1% in 2023.

IHS Markit economist and Bellwether Report author Joe Hayes says the latest results show there are tentative signs of a momentum shift.

“It appears that firms are looking to release the pent-up investment which has been put on hold amid the high degree of political and economic uncertainty which has plagued the UK business climate for well over 12 months now,” explains Hayes.

“Nevertheless, while these positive developments will perk up enthusiasm for marketing budgets in the coming year, downside risks to the outlook remain at large, particularly if a business cycle recovery does not fully materialise and Brexit uncertainty descends again.”