The quarterly Bellwether Survey from Britain's Institute of Practitioners in Advertising signalled a further downward revision to marketing spend during the period January-March 2006.
The study, conducted for the IPA by NTC Economics, indicates that the latest downturn follows weaker than originally budgeted growth in 2005. Budgets were again moved from main media advertising and sales promotions toward direct marketing and the internet - a trend marketers say is set to continue during the course of 2006.
These were revised downward in Q1 for the fourth consecutive quarter, reflecting weaker than expected sales. And although one-in-four companies revised their budgets upward, 31% reported budget reductions.
Tipped by recent downward revisions, growth is now set to fall for the 2005-06 year to a level well below initial budget planning for the period. Provisional data on actual spend in 2005 suggests that growth was the weakest since 2002.
However, growth of marketing spend is signalled for 2006-07, with 46% of companies reporting a rise in budgets against just 23% reporting a decline. But the overall initial increase in budgeted spend is subdued compared to previous years, suggesting that companies are entering the new financial year in their most cautious mood since 2002.
All categories saw downward revisions to current budgets in Q1 with the exception of internet-related marketing, which saw a further robust increase in spend.
Media advertising saw the strongest downward revision to budgets, followed by the 'all other' category of marketing, and then sales promotions.
Direct marketing was revised down for the first time in almost three years, though the cut to budgets was only marginal and, in comparison to the declines faced by other categories of spend, suggests a gain in share.
The pattern of spend moving away from media advertising and sales promotions toward direct marketing and the internet was also reflected in the data on actual expenditure in 2005.
This showed a fall in media adspend and sales promotions, but a rise in direct marketing and 'all other' marketing (which includes the internet). Similarly, data on new budget-setting for 2006-07 indicates that direct marketing is set to see the strongest rate of growth, followed by 'all other' marketing. Media advertising is set to see the weakest rise.
The share of total spend in media advertising is estimated to have slipped from 37% in 2004 to 33% in 2005, while direct marketing's share has risen from 23% to 27%.
The internet is now estimated to account for 4% of total marketing spend. Sales promotional spend has fallen from 14% to 12%.
Commenting on Bellwether, WPP Group ceo Sir Martin Sorrell told The Guardian newspaper: "The report confirms our experience. The UK remains one of the weakest geographical markets at the moment, But new media and new technologies are growing rapidly as clients experiment with different approaches and question the value of traditional media."
Data sourced from Institute of Practitioners in Advertising; additional content by WARC staff