Key points:

• Growth in UK marketing budgets maintained…
• …but uncertainty and cost pressures weigh on budgets
• Internet remains best performing sub-category but main media underperforms
• Company financial prospects positive, but concerns over wider industry performance
• UK adspend growth shows resilience in 2017, but set to slow markedly in 2018

 Weakest rise in budgets since Q1 2016

The marketing budgets of UK private sector companies continued to be expanded during the final quarter of 2017, reveals the Q4 2017 IPA Bellwether Report, out today (17 January 2018).

Latest data showed that 23.9% of marketing executives raised their budgets during the latest survey period, generally as part of efforts to support brands, aid the launch of new products or in response to greater competition.  However, cost pressures led in some cases to budget realignments as part of wider company efforts to protect profitability. There were reports of client caution and ongoing economic uncertainty weighing on sales, and these factors led to 15.2% of panellists reporting a cut to their total marketing budgets.

The resulting net balance of +8.6% was down from +9.9% in the previous quarter and the lowest since the start of 2016. Although growth has weakened for a second successive quarter, marketing budgets have been continuously expanded since the end of 2012.

Internet marketing records robust, but much slower, growth in Q4

Anecdotal evidence indicated that the recent trend towards greater digital marketing continued in the fourth quarter, with a number of respondents commenting on making greater usage of search/SEO and social media tools. Some panellists reported refreshing and re-launching their websites.

The net result was a further increase in overall internet marketing spend, extending a run of growth in this Bellwether category to eight-and-a-half years. However, the respective net balance of +10.9% was notably down on the previous survey’s +17.0% and the lowest recorded since Q3 2016.

Other Bellwether categories to register expanded budgets during the latest survey period were events and main media advertising.

Events budgets were raised for the seventeenth successive quarter, with companies noting the positive sales impact of direct client engagement. However, the net balance of +5.5% was down from +9.4% to signal a slower rate of expansion in the latest survey period.

Meanwhile, main media advertising returned to growth after the previous quarter’s stagnation. However, at +1.7% (from 0.0%), the net balance was indicative of only modest growth. Moreover, with internet a sub-component of the main media category, latest data implies a disappointing quarter for spending on the ‘big-ticket’ marketing areas of TV, press, cinema and radio.

Marketing budgets for all other Bellwether categories were reduced during the final quarter of 2017. PR recorded the lowest net balance (-6.6%, down from +7.2%), followed by other (-5.8%, from +2.3%) and market research (-5.4%, compared to Q3’s -2.4%).  Meanwhile, direct marketing (-4.5%) and sales promotions (-3.0%) both returned to contraction territory following stagnations in the previous survey period.

Financial prospects continue to underwhelm

The Q4 2017 Bellwether survey indicated that company financial prospects remained in positive territory, with a net balance of +10.6% of panellists more optimistic than three months ago. That said, the latest reading was slightly down on the previous quarter’s +11.1% and remained below the average for the survey to date.

Companies remained pessimistic about wider industrial prospects, with a net balance of -12.1% of companies becoming less confident when compared to three months ago. That compared to a net balance of -8.2% in the preceding survey.

2018 adspend growth predicted to be 0.3%

With business investment – and for that matter the wider economy as a whole – showing some unexpected resilience last year, the Bellwether Report has revised up its adspend growth forecast for 2017 to 1.4% (previous 0.6%).

However, with the Bellwether showing a loss of growth momentum in budget setting during the second half of 2017, we expect this to spillover into 2018.

With consumer spending set to remain under pressure from an ongoing real wage squeeze in 2018, adspend is set to rise by just 0.3%. Subdued growth occurs in spite of the positive tailwind to adspend that will emanate from the staging of the football world cup during the summer.

Adspend growth picks up in 2019, but remains weak at just 0.7% before improving to 1.0% in 2020. In line with forecasts of improved economic growth, adspend is set to rise by 1.4% and 1.6% during 2021 and 2022 respectively.

Commenting on the latest survey:

Says Paul Bainsfair, Director General, IPA: “Looking at quarter-on-quarter results it is clear that uncertainty from the wider geo-political situation continues to affect a cautious approach from marketers regarding their budgets.

“That having been said, we must take comfort in the fact that budgets have been revised up overall in Q4 and that as ever the ability for advertising to drive business growth cannot be underestimated.”

Says Dr Paul Smith, Director at IHS Markit and author of the Bellwether Report:

“A relatively lacklustre fourth quarter ensured that 2017 proved to be a year of two halves. After a strong first half, marketing budget growth was notably slower in the final six months of 2017 culminating in Q4 with the weakest upward revision to budgets since the start of 2016.

“Whilst fears of a sharp deterioration in the UK economy following the surprising EU referendum result in 2016 have so far proven to be unfounded, the current trend in growth signalled by the Bellwether survey is nonetheless consistent with an economy undermined by ongoing Brexit uncertainty and an increasingly common “wait-and-see” attitude amongst businesses and consumers alike.

“Companies have subsequently adopted a similar attitude towards their marketing budgets. Whilst willing to expand in perceived cost-value areas such as digital they continue to do so by weighing down on budgets related to traditionally bigger-ticket main media campaigns.”