UK ad spend suffers another sharp blow but IPA assures ‘bleak’ picture will brighten

In the three months leading up to December, UK ad budgets were reduced drastically, marking four quarters of consecutive cuts to ad spend. In total, almost a quarter of marketers noted a downward revision.

The ramifications of Covid-19, including locked down households and diminished consumer confidence around the globe, drove the sinking trend along with an uncertain Brexit transition period.

According to the IPA’s latest Bellwether report – which each quarter draws data from a panel of around 300 UK marketing professionals from the UK’s top 1,000 firms – the pandemic led to sharp declines in ad spend across all categories, including events, OOH and TV.

However, the rate of belt-tightening from marketers slowed down at the end of 2020 after two historic lows. What's more, preliminary forecasts are predicting a rosier picture down the line in 2021 as the government's vaccination programme gets moving.

Paul Bainsfair, the IPA's director-general said: “As the vaccination roll-out continues, as the lockdowns begin to ease and as firms adapt to post-Brexit rules, perhaps we can dare to ready ourselves for the roaring twenties after all.”

What were the top findings from the IPA’s Q3 Bellwether?

• According to the data, a net balance of -24% of Bellwether panelists recorded a contraction in marketing budgets in Q4 of 2020. Overall, only 16.4% of firms noted an increase in available funds, which was heavily outweighed by the 40.4% that experienced a decline.

• Though this represents a hefty proportion of marketers, the reduction in budgets was much weaker than those recorded in both the second and third quarters, when the economic impact of coronavirus was most severe with dips of (-50.7%) and (-41%) were recorded respectfully.

• While the impact of the virus was not quite as marked as earlier in the year, it was still the main reported reason for cuts to ad spending in the final months of 2020. Although businesses have continued to adapt to new market conditions and changing government restrictions, the IPA said anecdotal evidence indicated that cost-cutting was widespread and that marketing budgets continued to suffer as a result.

• As has been the case in each quarter since the start of 2016, panelists were pessimistic towards industry-wide financial prospects in the closing months of 2020. This was indicated by a net balance of -5.8% of firms that expected financial prospects to deteriorate over the coming year.

• ​However, in brighter news the degree of negativity eased to the softest since the opening quarter of 2017 (-5.7%) and was far weaker than the historic lows registered in the first three quarters of 2020. Overall, 25.1% of senior marketers were more optimistic on industry-wide financial prospects compared to three months ago, while 31.0% were less so.

• In contrast, there was increasing optimism among firms regarding own-company financial prospects in the three months to December. A net balance of +18.1% of firms were more confident of an improvement compared to three months ago when the same number sat at -3.9%. This marked the first positive outlook since the end of 2019.

• The preliminary outlook for ad spend in 2021 and 2022 suggests that budgets are likely to recover in the next financial year. A net balance of +12.0% of firms expect their total marketing budgets to be upwardly revised. If realised they would represent a significant turnaround from the steep declines seen throughout 2020.

What marketing disciplines were hit hardest?

• It won't be surprising news that events budgets were the most severely impacted in Q4, with a net balance of -62.9% of firms recording a decrease in available spend down modestly from -64.1% in Q3.

• Main media advertising, which includes TV saw a softer blow at -21.8% versus -25.3% on the former quarter. OOH, which also fell under this banner, saw a net balance of 36.7% of CMOs report cuts.

• Online was the only category within main media to record a positive net balance revision, at +0.7%, up from -6.5% in Q3.

Experts predict a brighter future after 'bleak' 12 months

• Following lockdown periods and other strict public health measures driven by the Covid-19 pandemic, and the subsequent disruption to economic activity, IHS Markit — the research firm that helps the IPA compile the report — said there was an -11.6% decline in UK GDP during 2020, which corresponded to a -17.8% dip to ad spend.

• Following the development and approval of the coronavirus vaccines, as well as the swift commencement of immunisation programmes, the outlook for the next few years is far more positive.

• IHS Markit therefore expects a +3.5% expansion of GDP in 2021, predominantly supported by strong growth in the second half of the year, followed by a +4.9% increase in 2022. Assuming that economic conditions recover as expected, it anticipates robust ad spend growth of +6.9% and +6.2% in 2021 and 2022 respectively, before a steady trend towards long-term rates.

• Eliot Kerr, an economist at IHS Markit and author of the Bellwether Report said although budgets continued to fall sharply at the end of 2020, it was promising that the rate of decline continued to soften following the unprecedented contraction during the second quarter.

• “Firms are now looking forward to a recovery in domestic economic conditions, which will likely begin in the second half of 2021 as the UK’s coronavirus vaccination programme starts to take effect,” he added.

• For Kirsty Giordani, executive director at the International Advertising Association (IAA), UK there’s no doubt marketers in the UK have had a turbulent year, exasperated by Brexit uncertainty in Q4.

• “With the end of the transition period in December 2020 coinciding with the ongoing impacts of the pandemic, it’s not surprising marketers were continuing to err heavily on the side of caution with ad spend; many had no other option but to do so,” she added.

• “However, with the final agreement in place, and provisions outlined to promote trade cooperation in digital services, including emerging technologies, UK agencies specialising in this sector of the ad industry should have some more clarity. Compounded with the vaccine rollout, this could be a time for tentative planning for recovery.”