Against the backdrop of pandemic recovery, political unrest and economic struggles the advertising industry has made promising headways. Yet, as the cost of living crisis continues to set in, UK companies’ financial prospects have deteriorated sharply contributing to cuts in adspend forecasts, according to the latest IPA Bellwether Report.

According to the Q2 report, around a quarter (24.2%) of surveyed companies raised their total marketing expenditure during the second quarter of the year while 13.4% registered budget cuts.   

Rebuilding post-pandemic  

Despite the economic unrest on the horizon, the industry experienced a strong start in Q1 with the return of live events and growth in experiential marketing. The new normal or "living with Covid" gave companies the confidence to plan face-to-face events and many used such events to relaunch their brands. At +22.2%, the respective net balance was up from +18.7% previously and the strongest-performing Bellwether category by a considerable margin. 

In other areas such as TV, marketing budgets stagnated, as early this year brands were able to work out which habits formed within the pandemic were here to stay, such as video streaming or gaming. While online (+4.4%, from +18.6%) and video advertising (+0.8%, from +9.0%) saw continued growth, they both saw steep slowdowns.

Proceeding with caution

With businesses cautious about the year ahead, the report indicates a broad-based deterioration in financial prospects in the second quarter as pessimism around the economic landscape grows. 26.7% of companies felt more downbeat about their financial prospects overall; the most negative outlook since Q3 2020.

Since the last Report, the IPA Bellwether author, S&P Global Market Intelligence, has downgraded its assessment for UK economic growth prospects in 2023 through to 2025, which in turn has seen it downgrade its adspend growth forecasts over this period too. It has also cut its adspend growth forecast for 2022 to reflect the strengthening economic headwinds that have built up through the year.

“Marketers are understandably concerned about the challenging business climate ahead, as reflected in the deterioration of their financial prospects. It is interesting to see, however, amid the mounting economic headwinds, there were a number of businesses that signaled their intent to market aggressively to support their brand and gain market share from less-prepared competitors. This is usually a wise and canny move. All the IPA’s analysis on who does best in a downturn, shows that the companies that recover fastest are the ones that either maintain or increase their marketing spend during difficult economic times.” added Paul Bainsfair, Director General at the IPA. 

He continued; “Meanwhile, others were also planning for the challenges ahead by positioning their businesses to support customers through difficult times. Brands need to be seen and continue to work for the benefit of consumers. They are important because they offer choice which ensures competition and lower prices, which in the months ahead will be important for consumers looking to spend their money wisely.”

Impact of inflation

The cost of living crisis and elevated inflation throughout 2022 will likely see a hit to consumer confidence and disposable incomes, which will have a knock-on effect to businesses and the advertising industry. The risk of a recession has intensified, and as such, adspend forecast for this year has been cut to 1.6% (from 3.5% previously).

With the growth path beyond 2023 now looking more uncertain amid the potential for these strong downside risks to persist, 2024, 2025 and 2026 adspend growth forecasts have also been trimmed to 1.4% (from 1.7%), 2.0% (from 2.2%) and 2.3% (from 2.4%) respectively.

“Whilst the market research sector might expect some downward revision to budgets in the near future, it has never been as important to understand the impact of the changing economic climate on consumers and the impact on their relationship with brands. Brands that continue to invest in understanding changing consumer behaviour at this critical time will be best placed to adapt their marketing strategies and garner rewards accordingly” explained Bill Doris, VP Analytics, EMEA, MediaCom & IPA Media Research Advisory Group Chair.

For all the industry challenges that lie ahead, the advertising industry must act strategically and consider the consumer to help support and rebuild through trying economic times.