Marketing budgets take a hit as Brexit uncertainty bites

Lack of confidence means many marketers are cutting back or moving budgets to cost efficient digital channels, according to the Bellwether Report.

budgeting

Marketers are by nature an optimistic breed, but in the face of the economic reality of rising prices and gloomy forecasts for economic growth since the Brexit vote, their innate positivity is being tested.

Dire forecasts of low productivity across UK PLC and continued talk of a “cliff edge” exit from the EU with no deal have left many marketers keeping a tight rein on spending and a close eye on media channels that promise quick returns.

According to the latest Bellwether Report – a trusted quarterly poll of senior marketers from some of the UK’s biggest spenders on media, conducted by IHS Markit and the IPA – 80% of companies froze or reduced budgets (69% and 11%) in the third quarter. Both were up on the previous quarter.

Bellwether

The marketers polled said uncertainty over Brexit was behind their reticence to commit to increasing spending.

Uncertainty over what the UK’s future relationship with the European Union will look like is putting the brakes on investment across the business world, a dynamic unlikely to change until talks between the European Union and the UK move to a transitional arrangement and a trade deal.

The Office of Budget Responsibility, the UK Government’s official forecasting body, recently declared it was now more pessimistic about the prospects for the UK economy than previously with Brexit cited as something that “almost certainly” exacerbated the negative outlook. Elsewhere, the Bank of England said yesterday (17 October) that inflation had yet to peak despite hitting a five-year high. The weak pound since the Brexit vote pushing prices up is not being matched by growth in wages, depressing consumer confidence.

Unsurprisingly against this background,, Bellwether respondents’ confidence in the prospects for the industry vertical they operate in took a hit, with 24% less confident than they had been when asked in the second quarter, compared with 15% more positive – the seventh consecutive quarter a negative net balance has been registered.

The report is  not entirely bad news. The above is a slight improvement on the second quarter, while companies were slightly more optimistic about their own financial prospects in the third quarter than they had been in the previous. However, the assessment of director at IHS Markit and author of the report Dr Paul Smith is stark.

“The latest Bellwether survey was characterised by uncertainty, which is reported to be weighing on investment and household spending. The net result has been relatively sluggish sales growth, with companies responding by adopting a more cautious approach, in many cases freezing budgets at levels recorded three months ago.

“Looking ahead, financial prospects remain broadly subdued as concerns about Brexit continue to weigh on sentiment. Combined with ongoing squeezes on spending from rising costs, these headwinds are likely to continue to undermine growth in the final quarter of 2017.”

The report again shows increased investment in digital media channels, possibly at the expense of traditional media with the report claiming respondents were swayed by “the perceived advantages of cost and return of digital marketing” A net balance of 17% increased their spending on digital channels, while spending on traditional media such as cinema, TV and radio was flat – a net balance of 0% increasing budgets compared with 9.8% in the second quarter.

Elsewhere, spend on PR and events was up on balance but investment in market research fell.

Bellwether

Smith adds: “Following the structural pivot amongst marketers towards digital platforms, the latest survey showed a stagnation of overall main media advertising in the third quarter of the year.

“Given this category encapsulates internet spending, which rose in the third quarter at a rate amongst the strongest seen in the past decade, the inference from the latest Bellwether survey is that spending on advertising in ‘big-ticket’ areas such as TV, cinema and radio continues to struggle heading towards the end of 2017.”

Elsewhere, data compiled exclusively for Marketing Week by the IPA and IHS Markit shows that plans to increase headcount were also hit by Brexit uncertainty.

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