Recovery stalls in UK advertising market

12 July 2010

LONDON: Brand owners in the UK returned to cutting their advertising expenditure during the second quarter of 2010, raising concerns that a "double dip" recession could hit the industry.

Almost 20% of the 300 executives surveyed for the latest Bellwether Report - which was commissioned by the IPA and BDO and produced by Markit Economics - trimmed their spending during Q2.

Only 15% of the sample boosted their outlay in this period, resulting in a net negative balance of 4.6%.

This suggests the sector's nascent recovery might already have ground to a halt.

This decline followed on from positive figures posted in the previous such study, when more firms heightened their investment than reduced it for the first time since 2007.

Adspend is generally perceived to be an overall indicator of corporate sentiment, as it among the areas that comes under major pressure when organisations are looking to conserve resources.

For the last decade, trends in marketing expenditure have fallen closely in line with GDP, and the Bellwether successfully "called the bottom" of the crisis in July 2009.

One out of every four contributors to the most recent Bellwether was pessimistic about the financial outlook for their company in the immediate future, up from 20% in Q1.

The proportion of the panel which expressed confidence in their employers' prospects remained largely static on 41%.

"The downward revision to marketing budgets in the second quarter is disappointing as it fails to build on the return to growth seen earlier in the year and highlights the fragility of the UK economic recovery," Chris Williamson, chief economist at Markit, said.

By medium, the share of businesses allocating more funds to web ads was 10.1% higher than those pulling back, with paid-for search improving by 6.6% on this measure, and direct marketing by 1.2%.

However, the pace of expansion recorded by the internet was the slowest for three years, and paid-for search experienced a softening in demand from the opening three months of 2010.

Media budgets posted a net slide of 1.7% in Q2, with sales promotion off by 11.5% and the "all other" category by 7.9%.

"There was a brief reprieve where everybody caught their breath and the Pavlovian response was to knee-jerk back into mindless optimism," Robert Senior, UK ceo of Saatchi & Saatchi Fallon, said.

"Actually, it was no more than that: a brief reprieve. This is going to last a while now, I think. Everybody is being asked to do more for less."

Data sourced from Financial Times/Marketing Week; additional content by Warc staff