IPA Bellwether: Brexit fears cause ad budget growth to stall for first time since 2012

Although 16% of marketers reported an increase, this was completely offset by a further 16% observing cuts to their marketing spend, leaving a net balance of 0% growth.

The report follows on from Enders Analysis forecasting that a no-deal Brexit would plunge the UK ad industry into its first recession in a decade, with spend likely to decline by 3% or £1.4bn.

Belt tightening from the c-suite prompted by the political and economic uncertainty of on-going Brexit negations has dampened marketers’ outlook for the year ahead too.

Looking forward to 2019/20, Bellwether data forecast a ‘near-neutral’ stance on overall ad spend budgets. 27% of marketers anticipated an uptick in budgets, but since 26% predicted cuts, it left a net balance of just 0.8%.

On an individual basis, the IPA said marketers expressed concern about the ‘adverse impact’ of Brexit-driven economic and political uncertainty on both consumer and business confidence. In some cases, responses indicated that the potential for a more challenging corporate environment was set to restrict financial resources available to marketing executives.

Also for the first time since 2012, Bellwether panellists cast a downbeat outlook on financial prospects for their own companies. A net balance of -0.9% in Q4 2018, which was down from +5.7% in Q3, signalled a mildly pessimistic assessment towards their own company’s outlook, compared to three months ago.

Meanwhile, industry-wide prospects remained negative, as has been the case since the fourth quarter of 2015, with the most pessimistic view at the industry level for seven years. The respective net balance reading fell to -28.6% during Q4, from -21.0% previously.

Paul Bainsfair, the IPA's director general, IPA indicated that the numbers showed the need for advertisers to ditch short-termism.

"Marketers need to weather this turbulent period and think ahead," he explained. "Now is the time to be bold, to keep up their share of voice and, if they can, increase it to grow their share of market. Businesses that rely on the strength of their brands need to follow the general 60:40 (brand building vs activation spend) rule of thumb.”

'Ad investment is vital, not optional'

The figures prompted a mixed reaction from the industry, with Michael Todd Google’s head of ad industry relations for EMEA saying it was more important than ever for the industry to “make the case that and advertising investment is vital, not optional.”

“Even in difficult times consumers don't stand still, so we cannot afford to baton down the hatches and fall back on fail-safe marketing strategies that worked before," he added.

"Arguably, it's more important than ever to experiment and innovate. It’s very likely that this growth plateau is merely a blip in the ongoing growth of this industry, but recent history shows us that when times are hard the winners do things differently."

Joe Hayes, economist at IHS Markit and author of the Bellwether report reflected on the reason behind the growth flatline.

"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," he explained.

"The neutral stance on marketing budgets came in tandem with a first pessimistic outlook by businesses towards their own companies’ financial prospects for the first time since 2012, suggesting that top-level belt-tightening and plans to protect margins has seen marketing executives be given less discretion. Indeed, provisional data for budgets for the coming 2019/20 financial year indicate that downbeat stance seems likely to persist."

Last night, Sir Martin Sorrell, chairman of S4 Capital, offer his own reaction to the failure of Prime Minister Theresa May’s proposed deal:

“This just makes business life even more uncertain and therefore more difficult. Also heightens the possibilities of a general election or a second referendum or of no deal.”