IPA Bellwether: UK marketing budgets hold on to “stronger than expected” growth ahead of a predicted flatline in 2024

UK marketing budgets continued to grow as the first half of 2023 drew to a close, with evidence of “stronger than expected” growth this year.

But a slightly more optimistic forecast – of a smaller decline than expected – in adspend for all of 2023 has been offset by a slight 2024 downgrade, signalling a likely flatlining of marketing spend next year.

Just over a fifth of marketers contributing to the latest Bellwether report from the Institute of Practitioners in Advertising (IPA) saw their budgets grow during Q2 2023, offsetting the 14.4% that reported their budgets being cut.

The resulting net balance of 6.4% (the percentage of marketers surveyed reporting an upward revision to current budgets minus those reporting a downturn) means continued growth this year so far, albeit at a softer rate than the previous quarter.

But analysis at channel level reveals main media spend has taken a hit, fuelled by declines in audio spend, slower budget growth for online and video and sales promotions budgets seeing the largest growth surge since the survey was first released.

Sales promotions see investment surge as main media dips

Main media budgets have once again swung into decline after two consecutive quarters of growth – despite marketers’ predicting a double-digit rise for the channel in the 2023/24 financial year.

Across main media, a net growth of 8.3% for ‘other’ online advertising and 3.2% for video were both softer growth trajectories than the previous quarter and set against continued declines for out-of-home and publishing and a steep fall in audio of 8%, given its 1.7% growth recorded in the previous three months.

Analytics Partners Director Paul Kelly told PMW that the downward spend on main media was “unsurprising, with so many emerging channels to explore, rich with valuable data, and primed for innovation”.

Meanwhile across other Bellwether categories, sales promotions enjoyed the strongest growth in spend since IPA began its analysis 23 years ago. Sales promotions budgets were up a net 13.4% – exceeding expectations. The growth indicates a shift in investment to support customers and coupled with the drop in main media budgets, suggested a “reactive change by UK businesses in response to the economic climate”, IPA said.

Events budgets continued to show growth of a net 9.8% in an unsurprising move of budgets over this year, while direct marketing budgets – which includes email – were up by a net 7.3%.

“The message is ‘we’re here for you’ — but out of necessity as well as altruism”

Against a backdrop of inflationary pressures, interest rates and some fears that a recession could still take hold in the UK, the latest findings offer an “air of uncertainty”, Tribal Worldwide’s Chief Client Officer David Balko told PMW.

“During the cost of living crisis, brands have understood what is most important to customers and have focused their budgets firmly on sales promotions to support them. With concerns around economic threats prevailing, it will be important for marketers to not scale back this investment, but continue as they have over the past 12 months – maintaining this focus across areas that will support shoppers.”

Kelly added: “In this cost-of-living crisis the message is ‘we’re here for you’. But dig deeper and some sectors are piling into sales promotions through necessity rather than apparent altruism – retailers in particular have been hit by low consumer demand and the need to sell overstock.”

Flatlining marketing budgets in 2024

The Q2 2023 Bellwether report has also revealed cautious forecasts for ad-spend in 2023 and beyond.

A small decline is still expected this year – of 0.6%, though this is a slight relief on the 0.9% dip previously forecast and coupled with IPA’s hopes of a stronger than expected performance for 2023, marketing budgets may still see an upturn this year after all.

But 2024 will hold uncertainty, with a forecast growth in ad-spend of just 0.1%, down from the 0.5% predicted three months ago as the effects of higher interest rates take hold on consumer and business spending. Further improvements are however expected over the following three years, with a small uptick of 1.5% forecast for 2025.

The findings are set against a more pessimistic mood among the marketers surveyed when it comes to their financial prospects for their wider industries. Almost three in 10 respondents expressed a downbeat outlook, against the 16% who were optimistic, meaning a deeper dive into negative territory of -12.6%. The picture when it came to the prospects for their own companies was more balanced, but the net balance of 2.6% was down on the 7% in the previous quarter, with almost half reporting no change in their outlook, so not hedging bets on any upticks or downturns ahead.

Growth represents “resilience of UK businesses”

Laura Denman, Economist at S&P Global Market Intelligence said of the overall findings: "Bellwether survey data highlights the resilience of UK businesses, which appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated.

“Surveyed companies continued to expand their marketing budgets in the second quarter despite still-severe inflationary pressures and continued interest rate hikes. We’re seeing evidence that UK companies are proactive in their decision-making, and are adapting to the competitive business environment and challenging economic landscape in a robust manner.

“This bodes well for stronger than expected results in the second half of 2023.”

Retention issues to stall threats of job cuts?

More than half of the marketers surveyed by the IPA reported that they expected no change to their organisation’s staffing numbers over the next three months – resulting in a slight mellowing out of employment growth prospects, but this remained in positive territory.

The net balance of 15.1% reflects a slight dip in those forecasting a rise in their staff numbers for the quarter ahead, but there was also a dip in those anticipating staffing cuts as more opted for a neutral outlook. IPA notes that staff retention issues and the ongoing skills shortage have perhaps culled fears of cuts, but an ever tightening labour market and increasing pay pressures remain core to exacerbating those retention challenges.

The opportunities posed by “competitive” threats – and why AI is not for all

Marketers continue to worry about the cost of living crisis, inflationary pressures and rising interest rates – with IPA respondents not bucking the trend of previous reports over the past year or more when it comes to naming their top perceived threats for their industries.

Many were concerned about the effects of consumer confidence and spending power from high inflation and interest rate hikes with some respondents signalling their concern that a recession may indeed materialise.

Competitor threat was also a concern, with some worried about losing market share because of better pricing strategies. On the flip side, energy and raw material price falls have enabled some firms to boost sales with discounts for their customers, while easing frictions in supply chains have meant manufacturers and retailers can restock and enhance their offers.

Some panellists were keen to point out that competitive threats could spell opportunities for brands to improve and innovate. There was a feeling that a more environmentally-friendly approach to industry was becoming a higher priority, with brands incorporating sustainability into their operations said to have the opportunity to capitalise on shifting consumer attitudes.

Technology – in particular AI – was a dominant theme when respondents were asked about opportunities on the horizon. Those on the panel were largely clear in their intention to use AI and other tools as they look to technology to increase efficiency. AI within marketing was however not unscathed by cynicism and concern, with one media panellist considering the “use of AI and tech which will devalue what the industry does” a threat.