AA/WARC: forecasters warn of a decline “in real terms” for UK 2023 ad market

3.8% forecast growth for adspend this year, with search and online display propping up many traditional channels, but 2023 set to see slowest growth for the market in a decade bar pandemic-hit 2020.

Forecast growth in the UK ad market is expected to stutter this year, with warnings of a possible 3% decline in real terms once inflation is taken into account.

The latest analysis from the Advertising Association (AA) and WARC is forecasting a growth in adspend of 3.8% for 2023 to hit £36.1bn over the year. This follows an estimated rise of 8.8% predicted for 2022 – a 0.4 percentage point slip on the previous predictions in October last year.

The 2023 forecast remains virtually level with the last AA/WARC review, but almost all sectors across advertising are subject to reduced growth expectations as economic pressures take hold.

Ad investment set to bounce back in 2024

AA/WARC also highlighted that despite the 3.8% uplift in adspend this year, inflationary pressures mean a decline for the market of 3% in real terms this year. WARC’s Director of Data, Intelligence and Forecasting James McDonald also warned that the market will see “the weakest rise in a decade if the pandemic-hit 2020 were excluded”.

He however pointed to a “short-lived” slump in the UK ad market, with predictions that investment is “set to lift by 5% over the first nine months of 2024“. But marketers will be subject to pressure in the run-up, as 2022’s more buoyant 8.8% growth estimate is also masking an inflationary pull down, with real term measurement meaning that the UK ad market is in reality expected to be flat in 2022 (-.0.1%), despite a £34.7bn predicted spend across the year.

McDonald told PMW: "We expect more favourable macro economic conditions next year, including inflation cooling close to the Government's 2% target and GDP returning to growth following a projected downturn this year. We also expect short term fillips for the ad market from the Men's Euro 2024 tournament and the UK General Election.

"Online formats, combined, are expected to account for 77% of all spend during the first nine months of 2024 with investment up by 6.3%, compared to a 5.3% rise forecast for between January to September this year. Social media, search and online video are set to grow ahead of the wider market and will consequently gain market share."

But classified advertising - notably in the recritment sector - is expected "to act as a drag on internet growth this year, but that should ease into 2024 as trading conditions improve".

Growth for search holds firm but choppy prospects across many traditional ad formats

Search and cinema were the only two sectors not to see downgrades in their forecast growth for 2023, with a 31% growth for cinema predicted this year and a resilient 6.2% growth for search. 2022’s 11.7% growth forecast for search also held steady on the previous release.

Across all internet adspend, growth in 2022 is projected to hit 10% but the latest analysis reports this as being well down on the average rates of growth seen between 2010 and 2019 before the pandemic hit.

Online display advertising is still expected to grow by more than 6.3% in 2022 and 5.4% in 2023, but online classified adspend is set to see a drastic U-turn in fortunes this year – dipping by 6.1% in 2023 after a 20.9% forecast growth for 2022.

Outside of online formats, growth in TV advertising spend is expected to be driven by video on demand, while out-of-home (OOH) will continue its recovery, growing by more than a third in 2022 and a slower but solid 5.8% this year. Within OOH, the digital format is set to grow by 7.2% in 2023.

Stephen Woodford, AA Chief Executive said: “The UK advertising industry has held firm in its continued recovery from the COVID pandemic, with ad investment holding up in the face of significant headwinds. However, the economic pressures of 2022 including high inflation’s impacts on the wider economy and on media costs means in real terms spend is likely to be flat. These pressures all contribute to slower growth projections for the year ahead.”

Q3 2022 adspend: the figures

Q3 2022 adspend in the UK rose by 4.3% year-on-year, said the AA/WARC Expenditure Report, which was the ninth consecutive quarter of growth and indicated an ongoing recovery from the pandemic.

AA/WARC also confirmed a 10.8% uplift in spend across the first nine months of 2022 to hit £25.3bn.

Across all online formats, investment was up 7.1% in Q3 2022, to hit £6.5bn and dominate in terms of share of spend. Online formats took 76.4% of the spend for the quarter across all ad formats.

Search advertising saw a 7.7% growth in Q3 2022 – accounting for nearly 40% of total spend in the quarter, while online display was up 6.3%. Within AA/WARC’s online display category, social media grew 4.4%.

TV adspend declined by 6.6% but broadcast video on demand bucked the trend with a 4.3% growth, while OOH was up 13.2%, with digital OOH growing by virtually the same rate.

Golden quarter – golden performance?

Spend during Q4 2022 was forecast by the analysis to have risen by 4%, a downgrade of the 4.5% previously mooted. This meant a £9.5bn investment in the ‘golden quarter’ fuelled by Christmas and the FIFA Men’s World Cup, which the report cited as a “good performance given economic challenges”.

McDonald said: "Our estimate for TV during the golden quarter was upwardly revised to 1.5% growth - buoyed by the World Cup, which had initially looked like a damp squib for marketers. Most of this revision was accredited to spots, which we'd thought may record a dip but are now likely to have come out of the quarter 1% up on the previous year.

"But this was the only notable upgrade on our previous projections. We think internet spend grew at approximately 5% in the final quarter, versus a 6.4% projection, with social media in particular under-performing. Twitter's current woes are well documented,  and the sector is still getting to grips with the implications of Apple's privacy push on its devices."

Woodford concluded: "Advertising plays a vital role in helping brands communicate with their customers and navigate the cost of living pressures that everyone faces. As we publish our new three-year strategy, which puts trusted, inclusive and sustainable advertising at the heart of our mission, we are determined to show the economic and social value of responsible advertising to the UK.”