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UK advertising budgets to grow in 2016 despite Brexit caution

British advertising budgets in 2016 to grow despite Brexit caution.

Cautious as they are about the Brexit furore, British advertisers are defying concerns that the growing uncertainty would hamper budgets, with advertising spend hitting its highest in more than two years, according to a report.

Ad spend growth for 2016 has been revised up to 1.9 per cent by the IPA’s Bellwether report, compared to the previous 0.2 per cent decline. The last report in July came just weeks after the referendum and consequently captured the initial apprehension advertisers had in the face of so much uncertainty around the country’s economy.

However, the latest gauge of their plans showed that a net balance of 13.4 per cent of companies increased their budgets in the third quarter, up from 10.7 per cent in the previous quarter. Overall budgets rose at the highest rate since the second quarter of 2014, highlighting just how much there is to play for in the move toward Brexit. Indeed, senior marketers from Aviva, Chartered Institute of Marketers and Brother International alongside agencies including Mindshare have been pragmatic in their view of the future, mindful that 2017 will be tough.

Paul Smith, senior economist at IHS Markit and author of the Bellwether Report, said: “The outlook remains uncertain, especially when trying to understand what the impact of the EU referendum vote will be, and financial prospects have somewhat softened as a result. However, a number of companies are looking through the uncertainty and see a new range of opportunities for their businesses to grow and flourish with.”

To that end, 2017 is set to be a more “challenging year”, with ad spend tipped to slump by 0.7 per cent as businesses rein in costs the closer the country gets to the March 2017 deadline for Brexit negotiations to begin. Prime Minister Theresa May’s plan for a hard Brexit that could see the country leave the free market will no doubt spook marketers whose budgets will be ruffled by the consequences, which as of yet no one knows what they are.

Already, advertisers are paying a closer eye on ROI from channels that deliver against the relevant metrics as seen by the last quarter when the growth for so-called “main media” advertising - TV (including mobile phone TV), press, radio, cinema, outdoor, directories and the internet – declined to -3.8 per cent, compared to a rise to 9.3 per cent the previous quarter.

The gloomy prospects were further foreshadowed by negative financial outlooks for the industry, with the net balance falling to -12.1 per cent, down from -8.1 per cent the previous quarter and the successive reading below zero. It signals a growing pessimism about the future among the country’s advertisers over the last three months.

“With marketing budgets revised up to their highest degree in over two years, we can say that marketers have held their nerve in the face of Brexit uncertainty,” said Paul Bainsfair, IPA director general.

"It is also pleasing that in light of this, Bellwether is now predicting a positive forecast for adspend growth for 2016. As the negotiated terms of UK withdrawal from the EU will become clearer in 2017 Bellwether predicts a more challenging year. We are certainly living through interesting times."

For more reaction to the report, read a selection of responses from the industry below:

Zoe Harris, group marketing director and head of invention at Trinity Mirror

Ostensibly it’s good to see advertising budgets increasing at a time when many spoke of caution. However, the devil is in the detail - maximum campaign effectiveness can only be delivered by spreading spend across channels, with recent research showing newspaper advertising makes TV twice as effective and online display four times more effective.

Whilst the Brexit vote may not yet have delivered the uncertainty and economic downturn feared, it has highlighted an increasing cynicism amongst parts of the population which marketers will not be immune from. This makes the context and content of advertising activity all the more important.

We’re increasingly seeing clients adding native advertising into the mix which really makes the most of the existing relationship between newsbrands and their audiences. At Trinity Mirror Solutions, we have brands which deliver engaged audiences of scale across national, regional, print and digital and Invention – our creative advertising solutions team – has seen a positive response to innovative cross-platform campaigns that make the most of these relationships.

Rob Gold, managing director at Zenith

The UK has been a stand out growth market over the past 4 years. Zenith forecasting estimated that growth would remain strong in 2016, but we were already predicting a slow down before the result of the referendum hit. This is illustrated by ad spend growth in 2015 of +9.2% dropping (pre Brexit) to a predicted +5.4% in 2016. The latest Bellwether report now predicts a year end figure of +1.9%.

Whilst we do not expect Brexit to have an immediate effect on budgets, which is evident from the continued growth predicted by Bellwether, the impact of Brexit may well accelerate this slow down as advertisers continue to step into the unknown next year, and beyond. This is likely to become more evident over the next few months, as uncertainty causes companies to scale back investment, and consumers to postpone big spending decisions – particularly with the lack of sporting events to place spend behind compared to the sport heavy 2016 we had with the Olympics and the Euros.

However it's clear to see that marketing remains a strong growth engine for businesses and brands, and we believe there will be a continued growth, albeit more modest, of circa 3% over the next 2 years.

Jason Cotterrell, UK managing director at Exterion Media

It’s great to see resilience in the market, though understandable that there will be uncertainty over the coming months, as we move into 2017 and are faced with even more predictions about what a post-Brexit UK and EU will look like. Given market uncertainties, it is crucial that we in media continue to deliver evidence and assurances to advertisers that we will continue to push for greater engagement, measurement, transparency – and, most importantly, return on investment. Data will play a leading role in delivering this, especially within the out-of-home industry as we deploy new technologies and tools to become even more accessible and accountable for marketers.

The report shows that internet spend is rising, which chimes with the strong showing for internet ad spend forecast by AA/Warc previously – and which predicted how digital spend will drive overall growth for out-of-home this year, ahead of other media including TV. Given that the digital transformation of the media landscape is evolving at a rapid pace, the industry must continually strive to understand consumer behaviours and needs – and invest in the right ways. Not do ‘digital for digital’s sake’, but look seriously at where we can provide the most relevance for consumers. Our audiences matter and if we get that right, new opportunities for growth will come in spite of what lies ahead.

Mark Roy, chairman at REaD Group

These figures are clearly encouraging and we are delighted to see a return to a more normal service after Q2 which for us, and I understand many others, was a bit of an unexpected slowdown.

Brands in this climate cannot afford to take their foot off the pedal for fear of competitor brands steaming past them. To that end, there seems to be an almost post-recessionary feeling to proceedings at the moment, with significant activity taking place but not much strategic planning or long term thinking going on.

This more cautious approach is perhaps best exemplified in the growth of Direct. Whilst I continue to have issues about the IPA definition of Direct, the fact being that direct delivers the ability to engage more personally with the customer and prospect and to deliver a truly personalised experience. We are seeing real consumer fatigue around digital communications and a real willingness to be contacted in different ways. I have been talking about a resurgence in DM for a few months now so perhaps this is the first indication of brands waking up to the really sophisticated opportunities that the channel presents today.

Ben Murphy, UK managing director at Quantcast

The IPA Bellwether report shows UK marketing budgets have increased at the highest rate in over two years in the third quarter this year, which is very encouraging for the industry. However, the challenge for marketers, as we go into 2017 will be to ensure we’re measuring the success of digital advertising correctly, and online ad campaigns can continue to have a positive impact on businesses’ bottom line.

As an industry we need to ensure that standards are consistently high when looking at what a successful ad campaign looks like. If we continue to focus on metrics that don’t bring real value and attribution, we’ll miss the bigger picture of how impactful digital can be in the long-run.

In terms of recognising the value of digital across the marketing mix, marketers have viewed digital as a direct response channel, to drive a sale at the end of the purchase funnel. This mindset is now shifting to take into account the fact that online display advertising can be a valuable canvas for brand budgets, and is infinitely more measurable.

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