AA/WARC: UK adspend growth to ground to near halt this year as social media falls for the first time in 2022

Adspend grew by nearly 9% in 2022 despite a drop in Q4, and while online dominated last year’s investment, all channels have downgrades in growth expectations this year.

UK adspend growth is set to stall after downgraded forecasts reveal that the industry is predicted to see an uplift of just 0.5% to reach £35bn in 2023.

A combination of inflationary pressures, a downturn in spend in later 2022, and talent shortages across the industry have resulted in the Advertising Association (AA) and WARC revising their 2023 projections from a previously forecast 3.8% growth.

The latest AA/WARC Expenditure Report, confirms that investment grew last year as expected, by 8.8%. But the findings reveal that despite a buoyant 26% growth in the first half, momentum waned significantly as 2022 went on.

Social media spend falls for the first time – and search also hit

The second half saw spending fall by 5.7%, owing to a significant dip in online advertising spend as the channel continues to be the key source of investment in the industry. WARC’s Director of Data, Intelligence and Forecasting James McDonald told PMW that despite weakening economic activity there was no suggestion of a fall this sharp.

“I think the real surprise perhaps is where the downturn was recorded. Search advertising – inclusive of e-commerce – dipped for the first time since the pandemic hit in 2020, and social media spend fell for the first time ever in the UK.

“The downturn here can be ascribed to decreasing demand among smaller advertisers who buy direct and whose margins are most exposed to drastic changes in core inflation. It should be noted that the broadcaster video on demand (BVOD) element of TV did grow during the fourth quarter, and I think that can be attributed in some part to the World Cup.”

Social spend is not anticipated to be sacrificed in favour of other media, and AA/WARC believes, as with other media, that investment levels will recover later this year, but “it is likely that budgets are being allocated among different social platforms, as we have seen with Twitter, for example,” said McDonald.

Online advertising not immune to downturn

Online advertising, which accounted for three quarters of 2022’s spend alone, surged by 30% in the first half of 2022. But the channel was not immune to the pressures on investment in the later half of the year, when online adspend fell by 5.4%.

Cinema and out-of-home adspend saw the strongest growth last year of 123% and 31.1% respectively, but this was borne out of a dramatic downturn during the COVID-19 pandemic. Green shoots also came from BVOD, which registered a year-on-year growth of 15.4% in 2022, and paid search, which saw a 12.7% uplift.

In Q4 2022 alone, BVOD, cinema and out-of-home were the only areas of growth compared to 2021, with BVOD the outright ‘winner’ at 9.5%. Meanwhile search and online display saw dips of 4.2% and 5.9% respectively, and online classified tumbled by 14.5%,

The overall 8.8% growth in 2022 means the industry was worth £34.8bn last year, but the final ‘Golden Quarter’ of the year alone fell by 5.8% year-on-year – to £8.6bn – the first time adspend had dipped in a fourth quarter in 13 years.

The current climate indicates that the UK, currently noted by the report as the world’s third largest ad market, will post the slowest growth across the global top 10 in 2023.

“It takes a brave marketer to request a larger budget in a downturn – and a braver CEO to permit it”

McDonald confirmed that the UK’s ad market entered recession late last year, even if the wider economy managed to avoid it. The figures signal warning signs to an industry that has long been calling for budget holders to keep the taps on for marketing spend, with marketers already concerned that their investment potential will be cut amid the uncertainty.

“All the evidence we've seen at WARC suggests that cutting advertising spend during a recession – particularly for brand-building campaigns – has a detrimental impact, but it takes a brave marketer to request a larger budget in a downturn and a braver CEO to permit it,” McDonald conceded.

“I understand there is a degree of caution in the market, especially given the nature of the headwinds which are, most likely, short term and are expected to have subsided by 2024, so there may well be a tendency to wait for things to 'blow over'.

“They say that in every crisis there is an opportunity though and many brands will be looking to gain share of voice while others are muted, but I think generally speaking demand is going to be weak until the summer at least.”

Outlook for 2023: muted growth prospects for online adspend

The 0.5% forecast growth for 2023 is actually a fall in real terms of 2.4% when factoring in CPM inflation, McDonald warned, as “inflation squeezes the consumer while pushing up the costs of buying media space”.

After impressive growth spurts of more than 10% amid a rocky 2022 across the industry, paid search and online display will see a slowdown in 2023, with both forecast to grow in spend by just 1.7% this year. But online classified has the largest forecast downturn across all of AA/WARC’s channel predictions – of 7.5%.

The impressive growth spurt of BVOD in 2022 will dampen down in 2023, with a forecast uplift of 2.5% this year and 3.6% in 2024. ​​

2024 growth forecast benefits from easing inflation

A more optimistic outlook in the later half of the year has led to AA/WARC forecasting a 3.9% growth in adspend next year to hit £36.3bn, though McDonald pointed out that “advertising spend is still predicted to rise below its long-term average in 2024”.

Inflation is expected to ease however, and get closer to the UK Government’s 2% target, with the result of growth picking up. Search and online display will see growth topping 5% next year, according to the forecasts, while online classified is expected to dip in spend by a further 2.7%.

Annette King, AA Chair, concluded of the latest report: “It’s clear from these figures that the UK needs a strong plan for growth, one that capitalises on the advertising industry’s talent to help businesses innovate and compete, and support jobs and livelihoods up and down the country.

“At the same time, we need to address the talent shortages faced by our industry – for example, working with the Government to increase flexibility in apprenticeships, and answering the demand for digital skills and expertise which will equip our workforce for the future.”