Strong but slowing growth for UK marketing budgets as cost of living crisis bites

IPA Bellwether report for Q2 2022 shows stagnant main media budgets, with performance marketing spend seeing steep drops in growth rates.

Marketing budgets remain in double-digit net growth as the end of the first half of 2022 closed, according to the latest Bellwether report from the Institute of Practitioners in Advertising (IPA).

After the eight-year high net growth of 14.1% recorded in 2022’s opening quarter, Q2 net growth remains in positive territory, though at a slightly slowing pace. 

While 24.2% of marketers have revised their budgets upwards, 13.4% said they had cut spend – resulting in a net growth of 10.8% (taken from the percentage of all companies reporting an uptick to current budgets minus those reporting a downturn) for the last quarter. 

The growth, said the report, is despite strengthening economic headwinds and aggressive inflation pressures hitting disposable incomes and raising business expenses. 

Firms were also adapting to a post-pandemic world and looking for new methods to grow businesses through face-to-face activities, with events marketing budgets seeing a record upward revision, at a net growth of 22.2%.

Aggressive marketing to compete with shrinking household budgets 

Paul Bainsfair, IPA Director General, said the findings reflected marketers’ understandable concerns about the challenging economic climate ahead, but that a number of businesses were signalling their “intent to market aggressively to support their brand and gain market share from less-prepared competitors”.

“This is usually a wise and canny move. All the IPA’s analysis on who does best in a downturn shows that the companies that recover fastest are the ones that either maintain or increase their marketing spend during difficult economic times. 

“Equally, cutting ad budgets - relative to competitors’ spend - in a recession undermines companies’ ability to grow future market share and profits.” 

Performance marketing channels stall in spend

The latest figures report a reversal in fortunes for other marketing channels. Main media, which includes performance marketing channels, came to a standstill (0%) in Q2 2022, ending a year-long growth period. 

There was still an upward revision in budgets for other online – of a net 4.4% and for video advertising at 0.9%, but these are steep slowdowns from the previous quarter’s 18.6% and 9.0% respectively. 

Published brands moved into negative territory, at -2.6%, while there were significantly deeper declines compared to Q1 for audio (-16.4%) and out-of-home (-15.9%).

Joe Hayes, Senior Economist at S&P Global Market Intelligence, said: "The stagnation in main media marketing budgets is a disappointing result from the Q2 survey and suggests concerns around the outlook are weighing on decision making. Risks are clearly skewed to the downside as the intensifying cost of living crisis weighs on disposable incomes, while firms face difficult decisions regarding their spending at a time when their cost burdens continue to inflate." 

Forecasts for the year ahead

For the first time since Q3 2020, marketers’ own-company financial prospects fell into negative territory. Almost a third (30.7%) were pessimistic, compared to 21.2% reporting optimism, a net balance of -9.5%. Respondents were also gloomier about industry-wide financial prospects – at a net balance of -26.7% in Q2, compared to -3.6% in Q1.

The IPA has downgraded its 2022 to 2026 growth forecasts for adspend growth to reflect the strengthened economic concerns, including hits on consumer confidence and disposable incomes and higher business costs. 

Adspend for this year is forecast to grow by 1.6% (down from 3.5% forecast in Q1 for all of 2022), while 2023 has been cut to 0.8% (from 1.8%) and the outlook for the following three years have been trimmed down following uncertainty over the persistence of economic risks.

Employment prospects strong, but wage pressures a concern

The report highlighted skills shortages and rising wages as another pressure faced by industry, with some panellists were concerned about staff leaving their company to chase higher pay. Others reported that they intended to upskill staff with hopes of aiding retention and increasing productivity.

But the latest findings found strong hiring intentions among survey respondents, with 38.4% expecting their company’s employment levels to grow in three months’ time, unchanged from Q1, though a slightly higher proportion expect staffing levels to drop (11.6%). 

The net balance of 26.8% is the lowest since the start of 2021, but strong by historical standards, the IPA said.

“Living with Covid” activity subsides as economic pressures bite

The report noted its survey respondents citing significant threats to the business outlook both domestically and globally after increased activity from a post-pandemic bounceback makes way for the rapid increase in the cost of living dampening optimism and hitting business and consumer purses.

Some highlighted concerns for an imminent recession. Current drivers of inflationary pressures including the continued war in Ukraine, rising energy and transport costs and supply chain issues are expected to continue, while higher interest rates will drive up costs and are expected to deter investment.

But some in the Bellwether panel saw some brighter sparks ahead, with an appetite to continue to develop brand presence in the digital space a core theme among business opportunities, Increasing confidence in face-to-face activities was also evident.

Across the industries: The view from marketers - opportunitie

Panellists were asked to comment on the main opportunities for their industries over the coming 12 months. A selection of responses are summarised below

  • "Reshoring in the manufacturing sector will bring back work from overseas." Industrial/Utilities
  • "Continuing confidence in face-to-face activity." Media/Marketing
  • "As the market is returning back to normal, companies are looking again to expand." Public/Charities
  • "Opportunities for value/everyday low price brands." Retail
  • "Increased confidence in travel post-COVID." Travel/Entertainment
  • "Continued focus on digitalisation." IT/Computers
  • "Recovery of the hospitality industry." FMCG
  • "More face-to-face marketing at events." Consumer Durables
  • "Rising inflation will mean more people are looking for ways to save and gain extra money." Financial Services
  • "Improved supply of goods and a fall in shipping/material costs." Industrial/Utilities
  • "Companies looking to market themselves more aggressively due to the cost of living crisis making disposable income tighter." Media/Marketing
  • "New product launches." Consumer Durables
  • "More face-to-face contact as events return." Other Services
  • "General demand recovery and semiconductor availability." Industrial/Utilities
  • "Building market share while others struggle." FMCG
  • "Digital events and social media." Public/Charities

Main threats

Panellists were also asked to comment on the main threats to their industries over the coming 12 months. A selection of responses are summarised below:

  • "Cost of living increase leading to reduction in discretionary spending." Consumer Durables
  • "Staff recruitment and retention as the labour market has shrunk." Public/Charities
  • "Fragile supply chains." Industrial/Utilities
  • "Global economy concerns leading to a reduction in marketing and events budgets." Media/Marketing
  • "Impact of oil prices and war." IT/Computer
  • "New COVID variants impacting tourism." Travel/Entertainment
  • "Recession and the war in Ukraine." Retail 
  • "Cost of living making cars and vehicle production less affordable." Automotive
  • "Major shortages of components means order fulfilment is not always possible." IT/Computers
  • "Rising costs could see cuts to clients' marketing budgets." Media/Marketing
  • "Transportation and logistics difficulties." Consumer Durables
  • "Consumer spending power falling." FMCG
  • "Aggressive job market and the struggle to keep up with wages." IT/Computers
  • "Difficulties in import/export due to Brexit." Industrial/Utilities
  • "Talent retention and acquisition." Media/Marketing 
  • "General economic downturn." Consumer Durables