IPA Bellwether: surprise boost to ad budgets amid Brexit delays

UK marketers increased their budgets markedly in the first quarter of the year. However, the unexpected boost looks to be short-lived, with brand bosses erring on the side of caution for the remainder of 2019.

The quarterly Bellwether from the Institute of Practitioners in Advertising (IPA) —which features original data drawn from a panel of around 300 UK marketing professionals from the UK’s top 1000 firms — has noted a surprise boost to marketing spend after growth flatlined at the end of 2018 against the backdrop of Brexit doom and gloom.

In the first three months of 2019, a net balance of 8.7% of marketers said their budgets had increased; marking a huge improvement on the previous quarter's 0%. The uptick is the most significant since Q3 2017.

Overall, around 21.6% of panel members observed spending growth, compared to 12.8% who registered budget cuts.

Paul Bainsfair, the IPA's director general described the sharp increase as a "much-needed kiss of life in an economy gripped by Brexit uncertainty."

"The smart marketers realise that to grow their businesses, they must invest in them, particularly in mass reach, long-term media," he explained.

"While the forecast for the year ahead remains uncertain given the seemingly endless Brexit negotiations, those that want real competitive advantage should follow the proven rule that if you increase your share of voice above your share of market, you should expect to experience growth."

Despite noting a boost in Q1 2019, marketers are still being reserved in their budget projections for the rest of the 2019/20 financial year.

A modest balance of 3.4% anticipate budgets to grow during this period, notably weaker than past forecasts and the lowest figure since 2009. This time last year, a net balance of 18% of firms anticipated budget growth for the 2018/19 period.

Although approximately 26% of respondents foresee growth for the remainder of this year, the remaining 74% expect cuts or no change.

What's more, marketers’ confidence levels remain significantly negative. Following the first downbeat outlook towards own their firms' prospects since Q3 2012 during the previous Bellwether survey, the latest data shows no signs of improvement.

A net balance of -2.7% brand leaders indicated a pessimistic assessment towards their company’s finances, compared to -0.9% during the final quarter of 2018, showcasing a stronger degree of negativity.

Industry-wide financial prospects also remained pessimistic during the first quarter. However, the net balance of firms casting a downbeat assessment was slightly lower than previously, registering -22.6% (vs - 28.6% in Q4 2018).

The responses signal one of the most negative industry-wide outlooks since the global financial crisis.

With the Office for Budget Responsibility (OBR) having released new forecasts in March, the IPA Bellwether Report has revised its expectations for ad spend growth over the coming forecast horizon.

The OBR downwardly revised its growth projections for 2019 by 0.4 percentage points since October (previously 1.6%), reflecting weaker growth forecasts for consumer spending and expectations of reduced business investment.

As such, the Bellwether Report is forecasting a modest 1.1% annual expansion to ad spend this year, compared to 1.3% previously. This downgrade reflects the challenging environment caused by Brexit uncertainty, slowing global growth and rising competitive pressures.

Earlier this year, Enders Analysis forecast 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.

So where are marketers spending their money?

Unsurprisingly, the best performing category of the Bellwether survey was digital, which saw its net balance jump from 2.1% to 17.2% for Q1 2019.

Marketers also showed a strong appetite to enhance their digital footprints, with search and SEO spend up 14.2% vs -3.9% last quarter, as well as targeted advertising on mobile which grew by 3.6%.

A renewed drive for big-ticket campaigns was also apparent during the opening quarter of 2019, with main media marketing returning to growth (+5.2% from -6.2%). Events were the third and final Bellwether category to register expenditure growth (+3.4% from +2.6%).

However, market research, sales promotions and direct marketing budgets were all revised lower during Q1, with net balances of -4.2%, -3.7%, and -3.5%, respectively.

Amanda Farmer, London managing director of WPP agency VMLY&R in London said the overall upward revision of Q1 budgets was "a testament to the resilience – and foresight – of the UK M&A sector".

She added: "Even amid the chaos of Brexit, our industry understands that the best way to protect your brand is to invest in it. The marked increase in investment in digital is a reflection of the desire of brands to build a connected presence and maintain brand reputation - something which is not always easy to do in the face of macroeconomic uncertainty and tightening budgets."

She noted that even though the Bellwether report has downwardly revised its ad spend forecasts for 2019, there was "strong reason" for brands and agencies to remain optimistic.

Michael Todd, Google’s EMEA head of ad industry relations concurred it was “excellent” to see the bounce back in budget for the industry this quarter.

Todd claimed the boost reflected the fact that marketers understand that investment “is crucial even within uncertain climates”.

“We’re generally seeing the same attitude from consumers in the UK – confidence is holding, even if there are concerns around the future of the economy,” he added.

“As uncertainty has become the status quo, in part due to Brexit and ongoing global shifts, it’s important to continue innovating in our industry and finding new ways to prove marketing’s worth to key stakeholders.”