The latest quarterly Bellwether survey published today (Tuesday) by the Institute of Practitioners in Advertising - the official body representing British advertising, media and marketing communications agencies - makes for sombre reading.

Based on original data drawn from a panel of 250 marketing professionals, the report is a key indicator of the health of the UK economy. The survey panel represents all key business sectors, drawn primarily from the nation's top 1000 companies.

Bellwether Q3 indicates that marketing budgets on average were cut for the second quarter running, falling at the fastest rate since the invasion of Iraq in 2003. Given that marketing spend is a leading indicator of the wider economy, the latest survey suggests that economic growth over coming months is set to remain below its long-term trend rate.

Comparing UK economic growth (as measured by gross domestic product) against the revisions to total marketing budgets reported by Bellwether, the study suggests that during the two final quarters of the year Britain will struggle to repeat Q2 economic growth of 0.5%. Projecting this trend across 2005 as a whole, growth for the year is likely to be under 2%.

Q2 Bellwether, published in July, correctly anticipated the recent fall in adspend growth recorded in Q2 by the UK Advertising Association, and illustrates how media advertising has been cut-back to a greater extent than total marketing expenditure.

Slower economic growth has reportedly encouraged marketers to shift spend toward relatively lower cost activities such as the internet and direct marketing, both seen as more accountable and cost effective.

Bellwether Q3 predicts that actual marketing spend by category will trend thus ...

  • Media advertising
    For the fourth quarter in a row media adspend budgets were revised down in Q3. This decline was the largest of all the Bellwether categories with only 16% of companies reporting an upward revision compared with 22% reporting a decline. The steepest downward revisions were seen in the retail FMCG, media and IT and Computing sectors.

  • Sales promotion
    In the face of slower than expected sales revenues for the year, there was a reduction in sales promotion budgets for the third quarter running in Q3. However, this was less dramatic than the cuts seen in Q2 2005. The declines were seen in the business services, media, autos and consumer durables sectors.

  • Direct Marketing
    After being unchanged in Q2, direct marketing budgets were on average revised up in Q3. The upgrade to budgets contrasted with the cut in total marketing spend recorded during the quarter and suggests a shift away from media adspend and sales promotion.

  • Internet
    Budgets for internet spend continued to be revised up in Q3, showing the strongest upgrade of any category of marketing covered by Bellwether. Respondents to the survey reporting an increase stood at 27%, compared to just 3% reporting a decline. The rise seen in Q3 was equal to the steep increase seen in Q1, which was the third-largest gain recorded since the survey began in 2000. According to Bellwether survey data, the internet now accounts for approximately 4% of total marketing spend, up from less than 2% five years ago.

  • Other marketing
    In Q3 budgets for all other marketing expenditure were revised down for the third consecutive quarter. Downward trends were seen within all sectors, notably industrial, auto and media sectors. This can be linked to pressure on profit margins.
Comments the report's author, Chris Williamson of NTC Research: "Although official data showed corporate profits to have risen in Q2, the Bellwether survey clearly shows that companies are battening down the hatches as consumer spending remains subdued and energy prices stay high.

"Marketing budgets are typically one of the first areas of expenditure to be cut when business conditions deteriorate, so unless firms see demand for their goods and services pick up in the near future, the marketing budget cuts signalled by the Q3 Bellwether report are likely to be followed by cuts in other types of expenditure, notably investment and employment."

WPP Group ceo Sir Martin Sorrell agrees with Williamson's reading of the data: "Q3 Bellwether confirms what we have been seeing in the UK, and indeed France and Germany - clients spending cautiously overall, particularly in traditional media, and increasing spending in the direct, internet and interactive media."

For further information on Bellwether Q3 click here.

Data sourced from Institute of Practitioners in Advertising; additional content by WARC staff