Total UK marketing budgets have increased at the strongest rate since Q2 2017, according to the Q3 IPA Bellwether Report published today, as a final loosening of pandemic-related restrictions enabled a further march forward in the broader economic recovery.
A net balance of +12.8 per cent of firms registered upward budget revisions in Q3 2021, from +6 per cent in Q2. Approximately one-in-four Bellwether respondents recorded higher spending (25.6 per cent), compared with 12.8 per cent that observed budget cuts. The latest data marked the first time in three years that successive quarters of growth in overall marketing spend has been registered.
Many surveyed firms recognised the need to drive forward with marketing activity in the third quarter, with demand conditions bouncing back sharply and consumers looking to spend pent-up savings as lockdown measures were peeled back. The effectiveness of the UK's vaccine programme was also a key pillar of support for businesses, and many firms expect its positive impact to continue.
That said, although upward revisions to total marketing budgets were strong, they still fell short of the growth firms initially had predicted for the 2021/22 financial year, where a net balance of +17.4 per cent of firms anticipated expansion. Some surveyed companies were wary of lingering uncertainties, particularly around the trajectory of virus cases as we head into the winter period. Ongoing supply chain disruptions, which some firms mentioned had impacted their ability to carry out marketing campaigns, were also cited as a downside risk.
Revisions to marketing budgets by category
Main media advertising was the best-performing marketing category in the third quarter, with a net balance of +8.6 per cent of firms recording upward budget revisions (from +1.3 per cent), as more firms upped their spending on 'big-ticket' campaigns. Within main media, video (+12.6 per cent, from +4.2 per cent) was the main driver, followed by other online (+10.6 per cent, from +11 per cent) and audio (+6 per cent, from +1.1 per cent). Published brands returned to growth (+5.2 per cent, from -6.1 per cent), although out of home fell again (-2 per cent, from -7.5 per cent).
The remaining marketing categories were split between growth and contraction. Direct marketing was the next best performer, improving on the previous quarter (net balance of +5.6 per cent, from +0.7 per cent), while budgets reserved for sales promotions moved into expansion territory for the first time since the end of 2018 (net balance of +4 per cent, from -0.7 per cent). Meanwhile, market research registered marginal growth (net balance of +0.7 per cent, from -9.6 per cent). Events budgets remained under pressure as firms erred on the side of caution with regards to in-person marketing activity (net balance of -3.2 per cent, from -24.7 per cent), while PR (net balance of -1.8 per cent, from +1.8 per cent) and any other paid-for marketing budgets (net balance of -1.8 per cent, from -2.5 per cent) also fell.
There was a further increase in optimism among Bellwether panellists during the third quarter, with improved expectations for growth at both a company-specific and industry-wide level.
A net balance of +37.5 per cent of firms (versus +34.6 per cent previously) were more optimistic about the financial prospects for their own company, which was the most bullish Bellwether panellists had been about their businesses since the first quarter of 2015. Around 48 per cent of firms expect stronger growth than they did three months ago, compared to just 11 per cent who were less optimistic.
Regarding their wider industry, Bellwether panellists also shared a more positive outlook during the latest survey period. A net balance of +22.6 per cent of companies had a more upbeat view compared to three months ago. Although an improvement since the previous survey (+21.1 per cent), it was still below that seen in the opening quarter of the year (+26.2 per cent), which was the highest since the third quarter of 2014.
The UK's recovery from the COVID-19 pandemic has been much faster than the Bellwether Report predicted this time last year, in part thanks to the success of the vaccination roll-out, but also owing to the positive impact the furlough scheme has had on keeping a cap on the unemployment rate, which has contributed positively to strong levels of demand for UK goods and services.
Bellwether author IHS Markit has revised its GDP growth forecasts for 2021 and 2022 higher since the last Bellwether survey, to 6.6 per cent and 5.1 per cent respectively, from 6 per cent and 5 per cent, given the pace at which consumer spending has bounced back, with the UK's impressive uptake of the vaccine supporting this. The IPA believes that these factors will continue to facilitate the recovery to pre-pandemic levels of economic activity, and as such, the Bellwether Report anticipates strong ad spend growth of 6.6 per cent and 6.2 per cent in 2021 and 2022 respectively to accompany the strong economic expansion.
Beyond the near-term, IHS Markit expects rates of growth in both GDP and ad spend to normalise from 2023 onwards. The forecasts for 2023, 2024 and 2025 stand at 2.4 per cent, 1.7 per cent and 2.9 per cent respectively. While the Bellwether ad spend forecast for 2023 has been revised slightly lower (from 2.7 per cent), 2024 and 2025 have been lifted up slightly (from 1.2 per cent and 2.4 per cent respectively). As already mentioned, growth is very likely to slow in 2023 as IHS Markit expects pandemic-related losses to GDP to be fully recouped no later than mid-2022, while tax burdens are also set to rise in 2023, which will adversely impact domestic spending.
Paul Bainsfair, IPA Director General, said: “While we welcome the re-opening of global economies, it has brought with it various new challenges, particularly on the supply side. And there were widespread concerns among Bellwether panellists that supply shortages and issues with transport could hinder their business operations, and also impact their sales performances as many firms pass on these higher costs to their own selling prices. Having said this, we welcome the figures that reveal, in spite of this, advertisers are making the most of the overall economic uptick and are seizing the opportunity to invest in their brands. It is particularly good to see that companies are investing more in main media ‘big ticket’ campaigns, with these budgets revised up to the greatest extent since Q2 2017. As the evidence shows, investing in long-term brand building media is paramount to a brand’s long-term success.”
Joe Hayes, Senior Economist at IHS Markit and author of the Bellwether Report, said that the UK economy's performance over the third quarter had been remarkably positive, helped by the progressive loosening of containment measures and a successful vaccination programme.
“We couldn't have imagined such a fast recovery in economic activity earlier in the year when lockdown measures were at their most stringent,” he said. “We're expecting UK GDP to have recouped all pandemic-related losses by no later than mid-2022, and Bellwether panellists have provided us with even more evidence that firms are working hard to re-grow their businesses, with one-in-four upwardly revising their total marketing budgets. As we said last time, we hope this is just the beginning, and businesses continue with their aggressive growth plans to keep momentum moving as the post-lockdown growth boom peters out."