Following a year of political uncertainty compounded by Brexit and a snap General Election, UK marketers are showing a “renewed wave of optimism”, with UK ad budgets returning to growth for the most recent quarter.
According to the latest IPA Bellwether report, a net balance of +4.0% of UK companies revised their total marketing budgets higher in Q4 2019. The sum was calculated by tallying the percentage of respondents showing an improved revision to their marketing budgets minus those that indicated a fall. 23% of companies said they experienced growth between October and December, while 19% reported cuts.
Each quarter, the IPA draws data from a panel of around 300 UK marketing professionals from the UK’s top 1000 firms.
Since Q1 last year, marketing spend from these businesses has been stagnant amid the political upheaval presented by the UK’s departure from the EU. In Q3 last year, ahead of the General Election and with an exit plan hanging in the balance, marketers made modest chops to their budgets for the first time in seven years, warranting a ‘wait-and-see- approach.
Though the material impact of leaving the EU has yet to be truly felt, the uptick to budgets in the final three months of the year signals that the degree of certainty brought on by Boris Johnson’s election victory has placated those pulling the purse strings at big name brands.
The IPA said a number of panellists still expressed concern towards the outcome of Brexit, but others anticipated a “bounce” in business following Johnson’s placement in 10 Downing Street.
A number of companies revealed extra motivation to release additional resources for marketing, with the preliminary outlook for spending in the year ahead also looks promising. A net balance of +15.7% of companies said they expected their total marketing budgets to be upwardly revised, a significant improvement from the 2019/20 forecast of +3.4%.
Looking towards the coming year, Bellwether believes that conditions for marketing spend have become “notably more favourable”.
The robust preliminary budget plans for the 2020/21 period have reinforced this view, with the report highlighting how a key hindrance for the UK in recent times has been the lack of a government with a working majority. With this layer of uncertainty now removed following the General Election, panel comments suggest that businesses have become more inclined to invest and spend.
As such, Bellwether predicts 2020 will be a stronger year than 2019 and it forecasts annual adspend growth of 1.8%.
Joe Hayes, economist at IHS Markit and author of the Bellwether Report said there were a number of positives to take forward from the data, but indicated there were still challenges ahead.
“The rise in total marketing budgets provides tentative signs of a momentum shift, particularly when coupled with preliminary data for the 2020/21 budget year,” he explained.
“It appears that firms are looking to release the pent-up investment which has been put on hold amid the high degree of political and economic uncertainty which has plagued the UK business climate for well over 12 months now.”
“Nevertheless, while these positive developments will perk up enthusiasm for marketing budgets in the coming year, downside risks to the outlook remain at large, particularly if a business cycle recovery does not fully materialise and Brexit uncertainty descends again.”
'It won't be plain sailing'
Unsurprisingly, digital remained the top-performing category with a net balance of +7.9% of firms observing budget growth (versus +11.1% on the previous quarter).
Meanwhile, main media advertising budgets recorded a small upward revision of +0.5% following a stationary Q3.
However, all remaining segments recorded spending cuts, including market research which was down -13.2% and direct marketing, which was reduced by 7.7%.
Trends between industry-wide and company-own financial prospects diverged in the final quarter, with the latter moving into positive territory during the latest Bellwether survey.
Though the overall outlook for budgets was positive, as has been the case since the end of 2014, panellists were pessimistic towards the financial prospects in their own industry. This was signalled by a negative net balance of -21.0%, reflecting a stubbornly elevated degree of pessimism.
Nonetheless, this was a marginal movement upwards since the third quarter of 2019, where the net balance stood at -25.0%. Overall, over one-third (+33.7%) of businesses felt downbeat, while +12.7% of surveyed firms reported an optimistic view.
In contrast, own-company financial prospects improved noticeably in the final quarter of 2019, with a net balance of +1.0% of firms anticipating growth in their business.
This was the first time since the third quarter of 2018 that Bellwether panellists have been optimistic overall, and a notable upswing from the previous quarter, where a net balance of -9.4% of companies were downbeat on their financial prospects.
Paul Bainsfair, director general, IPA said the latest Bellwether demonstrated the extent to which UK budget planning had been “at the mercy of the unstable political environment”.
He went on: “Over the past year we have seen a stagnation in marketing budgets, culminating in a below-zero score last quarter. And yet now, with the clear result of December’s General Election, we are seeing a return to positivity in terms of UK companies’ confidence regarding their own financial prospects and in terms of their budgeting plans – up marginally this quarter and significantly for 2020/21.
“With Brexit still looming, I’m sure it won’t be plain sailing, but these forecasts provide an upbeat outlook for the year ahead for UK plc, their marketers and of course the agencies that work with them to grow their businesses.”