Online adspend grows by £1.5bn, but threat of “real-term contraction” looms across whole UK ad market

UK adspend in Q1 grew by 28.3% year-on-year to reach £8.6bn, as online continues its stronghold over the ad market, according to latest figures from the Advertising Association (AA) and WARC.

2022’s opening quarter outperformed expectations by almost eight percentage points – or almost £520m – with recovery in all media compared to the previous year. 

But despite a slightly upgraded outlook for the rest of 2022 – with a forecast 10.9% growth across the year – real growth for the UK ad market is expected to be just 1.8% when accounting for inflation and increased costs eating into margins. 

The inflationary pressures are likely to continue next year, with 2023 growth under threat in real terms. Growth in adspend is forecast to hit 4.4% (£37bn) next year, but this is downgraded from the previous outlook and in real terms means a 0.9% contraction.

The Q1 AA/WARC Expenditure Report comes on the back of the record £31.9bn adspend for the whole of 2021. At the time, the celebratory results were also tinged with a mix of caution for the coming year, as the cost of living crisis mounts, domestic energy bills look set top £3,000 a year on average and the effects of the Ukraine war continue to be felt. 

But despite the pressures, 2022 is set to reach a new high of £35.4bn, driven by the growth of online advertising, which is forecast to account for 74.3% of all spend this year (up from 73.5% in 2021). 

Online advertising across all formats grew by 28.9% – £1.5bn – in Q1 2022 to hit £6.5bn.

“A real-term contraction of nearly 1% in 2023 for UK advertising investment”

Stephen Woodford, CEO, Advertising Association, said on the latest figures: “It is encouraging to see growth in our industry over Q1, as the economy continues its recovery year-on-year following last year’s Covid-19 lockdown. 

“However, the pressures of inflation on living standards and economic growth are at the top of everyone’s mind, and these rising costs may represent a real-term contraction of nearly 1% in 2023 for UK advertising investment. 

“As the UK’s political leadership changes, it is important to recognise the value that advertising brings to the economy in supporting competition, innovation and growth at this critical time. A consistent, evidence-led policy-making approach, with due consideration of industry views and expertise, will help create the conditions which encourage, not hinder, economic growth and will be integral to the ability for businesses to weather the challenges of the coming year.” 

Online advertising registers strongest absolute growth 

Online channels took the lion’s share of the UK adspend market last quarter, to reach 74.9%.

Search and online classified each saw a convincing 29.9% growth year-on-year in the first three months of 2022, while online display – which includes social – was up 27.1%. 

Search is forecast to grow by 13.2% for the year, with online display’s outlook also positive (11.4%), as both forecasts were upgraded slightly compared to April’s report. But forecast growth is set to be more muted for 2023 – at 6.3% for search and 6.7% for online display. 

Online classified spend is expected to shrink by a similar proportion next year (-6.5%), with the outlook for 2023 across all the main online channels muted by between 0.7 and 1.8 percentage points compared to the AA/WARC’s previous expectations for next year. 

Those formats hit hard by the pandemic saw triple and quad-digit bouncebacks in Q1 2022, including out-of-home up exponentially rushing back to grow 146.2%, though caution was expressed given the diminished activity of these channels at the height of the pandemic.

“Soft landing from COVID-19 turmoil, but inflation starting to bite”

James McDonald, Director of Data, Intelligence & Forecasting, WARC said: “The latest survey data show that the UK’s ad market is currently experiencing a soft landing from the turmoil caused by the COVID outbreak, with early budget commitments translating into a strong start to the year for the industry.

“As predicted, however, inflation is now starting to bite; its impact on the consumer is well documented, but the rising cost of servicing government debt leaves the incoming Prime Minister with less fiscal flex for stimulating flatlining economic activity. 

“For advertisers, higher costs will carve into margins, and while a real term rise of 1.8% in ad investment is expected this year – compared to a pre-Covid average of 2.6% – the market is now set to contract in 2023 after accounting for these ongoing inflationary pressures.”