UK marketing growth slows as cost-of-living crisis bites

Total UK marketing budgets increased by a net balance of +2.1% in the third quarter, according to the latest IPA Bellwether Report – down from +10.8% in the previous period as rising cost pressures and high inflation take their toll on businesses and consumers.

The big picture 

The Bellwether Report follows hard on the heels of the latest inflation figures which rose back to a 40-year high of 10.1% in September, driven by a sharp increase in food prices. The political debate now emerging over whether that figure will be used to uprate benefits next April (an increase in pensions was confirmed by the prime minister at PMQs  yesterday) will be watched closely by brands as the final decision will affect the spending power of a significant number of consumers next year.

Meanwhile, there is a stronger level of negativity among Bellwether firms towards the financial prospects of their specific industry: just 6.3% of surveyed companies were more optimistic, 50.5% were downbeat, leading to a net balance of -44.3% – the most pessimistic assessment of industry-wide financial prospects since Q2 2020. Similarly, company-own financial prospects have moved in the same direction with a net balance of -27.6%.

Category growth 

• Only events saw growth in Q3 but at +4.5% this was sharply down on the previous quarter figure of +22.2%.
• Main media marketing budgets fell for the first time since Q1 2021, with a net balance of -3.1%. The largest drags were published brands (-11.2%) and out of home (-7.6%), while audio also fell slightly (-2.0%). 
• Other online advertising (+9.3%) and video (+8.7%) saw growth.
• The largest downturn was in the “other” category (-10.5%); sales promotions budgets also fell significantly (-7.5%).
• Smaller declines were registered in public relations budgets (-4.8%), market research (-4.1%) and direct marketing (-0.6%).

Outlook 

Bellwether authors S&P anticipate recession being short and shallow, in part owing to government support measures to assist households and firms with their energy bills (although those measures are now limited to six months rather than two years). This relief is likely to have also helped sustain adspend into the end of the year. As a result, the Bellwether has upwardly revised its 2022 adspend forecast to 3.7%, from 1.6% previously. Forecast growth for 2023, however, has been trimmed to 0.3% (from 0.8%). 

Key quote

“Budget cuts are being seen across the majority of the monitored segments of marketing spend as companies move into retrenchment mode due to soaring costs and slowing demand. The cost-of-living crisis will continue to weigh on household earnings throughout the winter, meaning discretionary spending cutbacks are inevitable for the UK's low-to-middle income groups that are at the heart of the economy” – Joe Hayes, Senior Economist at S&P Global Market Intelligence and author of the Bellwether Report.

Sourced from IPA Bellwether