UK adspend is forecast to grow by 9.2% this year to £34.9bn, according to the latest analysis from the Advertising Association (AA) and WARC.
The forecast is a 1.7 percentage point downgrade on the 10.9% predicted growth reported three months ago, when adspend was set to surpass £35bn across the year. But if the current forecast is achieved, 2022’s growth will be 37% over 2019.
The revision reflects the impact of rising inflation and squeezed margins as the UK grapples with the rises in the cost of living, while advertisers face higher media costs as the sector bears the brunt of inflationary pressures.
Pressures are expected to mount next year, with adspend forecast to grow by a comparatively low 3.9% in 2023 – a downgrade from the 4.4% posted three months ago – amid warnings that rising inflation will actually spell a real term contraction in the UK ad market next year.
“Nominal growth in UK adspend is set to more than halve in 2023, and will equate to a real terms decline once inflation is factored in,” the report stated.
Online advertising remains the dominant force for spend. Its share of the UK ad market is set to bust the three-quarter threshold next year, and its 2022 market share forecast to be 74%, according to the latest figures.
James McDonald, Director of Data, Intelligence & Forecasting, WARC commented: “With the economic picture worsening amid ongoing political incertitude, the likelihood of a recession is now higher than when we last assessed market prospects in the summer. Indeed, we have downgraded UK ad market growth expectations for this year and next, in large part to reflect the waning climate.
Pointing to the growth for investment in search, set for 11.7% this year and 6.2% in 2023, Gustav Westman, CEO and Founder of BrightBid, said: “Search advertising is predicted to be the fastest growing media over the quarter, rising to £3.4bn. As marketing teams retrench to channels that show immediate value as the economic winds cool, we’ll continue to see an increase in total PPC spend: the AA/WARC report is testament to this.
“As brands and advertisers face the difficult decision of effectively maximising revenue, advocating for technology to help cut down waste and save time and money has become an essential and necessary part to campaigns. Now is not the time to hold off on advertising spending, rather food for thought should be – how can technology help me get more value for my money?”
Q2 adspend in review: online dominates UK ad market
The latest AA/WARC Expenditure Report showed that adspend for Q2 2022 grew by 8.8% to top £8.5bn, with spend across the first half of the year growing by 14.4% to reach £16.7bn.
Online adspend was the core driver of growth in Q2 2022, accounting for three quarters (75.3%) of all spend.
Across all online formats, spend rose by 9.3% to reach £6.4bn. Online classified spend rose by almost a third, search spend rose 10.8% to close in on two-fifths of the market, and online display formats – including social media and online video – collectively grew by 5.4%.
Outside of online advertising, out-of-home (OOH) and cinema saw their continued recovery with adspend up by 46.4% and 2,208% respectively. TV was the only medium to see a downturn in spending fortunes in Q2, of 0.6%, but broadcaster video on-demand continued to grow by more than 9%, as demand rises across consumer audiences for streaming platforms and catch-up services.
Stephen Woodford, Chief Executive, Advertising Association said: “It is encouraging to see strong figures in Q2, with media channels continuing their recovery from the COVID-19 pandemic. Looking forwards, political and economic stability is much needed, given the inflationary and recessionary forces impacting all businesses.
“As companies navigate these pressures, we see them continuing to prioritise advertising investment to protect their brands in exceptionally challenging market conditions.”
Record high Christmas adpend expected in Q4
The AA/WARC analysis revealed that Q4 2022 is set to see adspend grow by 4.5% from last year’s record high, to reach £9.5bn. If this is reached it means a new record level of investment over the Christmas period.
Search advertising is expected to be one of the quickest growing mediums over Q4 – at a rate of 7.3% (totalling £3.4bn), while TV advertising is set to stay flat against a 4.2% rise for video on-demand.
Charlie Johnson, VP International of Digital Element, said that potential was there for Q4 ad spend, but that marketers should not just throw “more money at any marketing activity”.
“Instead, marketers need to use tools and partners who can provide solid, future-proof solutions with measurable ROI,” Johnson advised. “Let’s not forget this is taking place in a new, privacy-first era with a renewed emphasis on contextual advertising. IP intelligence can provide quality data that helps businesses optimise their efforts and targeting through vital user insights, such as location or connection data.”
McDonald added: “Higher costs are carving into advertisers’ margins and household budgets alike, and trading conditions are at their worst since the COVID-19 outbreak, leading to muted expectations for the Christmas quarter. Against this deteriorating economic backdrop, a 9.2% rise in advertising investment this year would be impressive given that it is near double the average rate of expansion recorded prior to the pandemic.”