Six years of growth in UK marketing budgets came to an end in the fourth quarter of 2018 as economic and political uncertainty caused marketers to “lose confidence” and pull back spend.
According to the IPA’s quarterly Bellwether report, there were no changes in marketing budgets in Q4, with 16.4% of marketers reporting they plan to increase spend and 16.4% that they plan to cut it, leading to a net balance of 0%. The last time the report showed marketing budgets were not in growth was in Q3 2012.
The result brings to an end a six-year bull run of growth. And while budgets are not yet in decline, there is little sign that growth will return. Looking forwards to the 2019/20 financial year, the proportion of those questioned saying they anticipate growth was 27%, only marginally higher than the 26% predicting cuts, giving a net balance of just 1%.
Joe Hayes, an economist at IHS Markit, which compiles the report for the IPA, expects marketers’ “downbeat stance to persist” as companies tighten their belts in order to protect profit margins.
“The slowdown in marketing budget growth seen in recent quarters culminated in Q4, as the six-year bull-run came to an end. Company-wide indecisiveness restricted the allocation of resources to marketers, as the wait-and-see approach to how the Brexit process will transpire appears to be the current strategy in place for many UK businesses,” explains Hayes.
The neutral stance on marketing budgets comes as marketers also turn pessimistic about the economic outlook for their companies for the first time since the third quarter of 2012. Overall, a net balance of 0.9% believed their business wouldn’t fare well financially in the fourth quarter, down from 5.7% that believed they would in the prior quarter.
Industry-wide prospects also became more negative, with a net balance of -28.6%, down from -21% in the third quarter.
There are wide-ranging reasons for this negativity but most stem from the ongoing uncertainty over the UK’s future relationship with the EU. This has led to concerns about business and consumer confidence, economic conditions and labour supply, as well as worries that Brexit could threaten the political landscape.
Given these results, as well as the Office for Budget Responsibility lowering forecasts for consumer spending, business investment and GDP, the IPA is now forecasting softer ad spend growth in 2018. It predicts growth was just 0.5% in 2018, down from previous expectations of 1.1%.
However, the IPA believes that once the new relationship with the EU becomes clearer ad spend will bounce back and so it has raised its forecast for 2019 to growth of 1.3%, from the 0.7% previously predicted. It also expects improved growth through 2022, although caveats that this will depend on the nature of Brexit.
The impact on media channels
That pessimism flows through to every media channel. Main media advertising was expected to fall in the fourth quarter, with a net balance of 6.5% expecting to cut budgets, compared to the 4.8% that expected to increase them in the previous quarter. That is the sharpest cut to budgets for big ticket advertising campaigns since the final quarter of 2009.
Internet, search and mobile budgets have also been affected. While they remain in growth, a net balance of just 2.1% of marketers saw rises in the fourth quarter, down from 13.6% in Q3 and 22.7% in Q2. Pulling that number down was the first cut in search/SEO since 2009, while mobile also fell into negative territory.
Direct marketing also saw budgets cut, although at a weaker rate than in prior quarters, as did public relations, market research and the ‘other’ category. Events and sales promotions, however, bucked the Bellwether trend with more marketers expecting budget increases than decreases.
Looking ahead, main media advertising is the only category expected to see growth, albeit weak, with a net balance of 0.9% of marketers anticipating increases. Direct marketing, public relations, market research, events, sales promotions and ‘other’ budgets are also expected to be cut in the future.