UK ad decline is slowing

14 July 2009

LONDON: Marketing budgets in the UK are still falling according to the second quarter Bellwether report from UK agency trade body the IPA, but are doing so at a slower rate than in the first three months of this year.

However, the fall in marketing budgets remains steep with just 10% of respondents revising their 2009 marketing upwards compared to 38% reporting a reduction.

With 2009 budgets set lower than 2008 to begin with, the downward revision raises the risk of spend falling even more in 2009 than 2008, the first annual fall in the survey's history.

The survey says the reduced incidence of budget trimming in Q2 was linked to a slight improvement in business confidence.

One in three of the companies surveyed reported that their financial prospects had improved for the first time since the first quarter of 2008, compared to one in four reporting a further deterioration.

But this is a sharp contrast to the widespread pessimism that peaked in Q4 of last year following the Lehman Brothers crash, which persisted into Q1 of 2009.

UK advertising expenditure is now forecast to fall by 13.3% in 2009, based on a combination of the Bellwether report and the latest forecast from the Advertising Association.

The annual rate of decline is thought to have peaked in Q1 but a return to growth is not expected until the second half of 2010. The AA's forecast for 2010 is unchanged at a decrease of 0.2% in real terms.

All UK main media declined in Q2 although the rate of decline slowed in all categories with the exception of internet search where the rate of decline increased modestly.

However, internet search has been the most robust category over the past two years.

Chris Williamson, chief economist at Markit and the author of the Bellwether Report says, "The Q2 Bellwether indicates that marketing budgets are being cut at a slower rate than seen in the two quarters that followed the collapse of Lehmans, linked to a welcome recovery in business confidence regarding financial prospects.

"But pressure on companies to control costs clearly remains intense, suggesting that any recovery in gross domestic product and marketing spend will be fragile and subdued."

Data sourced from IPA; additional content by WARC staff