Marketing budgets have plummeted at the fastest rate since the global financial crisis, but forecasts for next year suggest there will be a strong recovery, the latest IPA Bellwether Report says.

The COVID-19 pandemic has affected all forms of marketing activity, the report shows, but market research and events have been hardest hit.

The Q1 Bellwether Report, compiled between 2 and 27 March, shows a net balance of -6.1% of companies have revised their total marketing budgets lower. The figure is arrived at by subtracting the number revising their budgets downward from those revising them upward.

Exactly 25% of panel members recorded a budget cut, compared to 18.9% signalling growth. This contrasts with the last quarter of 2019, when the balance was +4%. The fall, the report says, is the steepest in a single quarter since the end of 2009.

Market research was the worst-performing category during the first quarter, with a net balance of -21%; events, with a net balance of -15.9% was next, followed by public relations (-14.3%).

The key brand-building category, main media, the report says, saw its strongest drop since 2009 – a net balance of -9.9%.

But the report points to optimism for the future, specifically expectations for a sharp rise in total marketing budgets for the 2020/21 financial year, as a number of Bellwether panel members see a rapid economic recovery.

A net balance of +16.2% of firms expect higher spending as companies plan to grow their business and brands. A significant number of companies said they were determined to tackle the current crisis and expected it to be short-lived.

And the most optimistic forecasts were for the crucial main media advertising segment with a net balance of +8.4% of companies expecting increased budgets. Events marketing budgets are also forecast to see growth once public health restrictions are relaxed, the report found.

IHS Markit, which authored the report, estimates that UK GDP will shrink by 4.3% in 2020 as a result of the COVID-19 pandemic; historically, this would suggest a 13.7% decline in advertising expenditure.

But IHS Markit warns of the uncertainty surrounding all forecasts: “Given the extreme degree of uncertainty surrounding the UK at present, the IPA Bellwether Report ad spend forecasts could be subject to substantial revision in the future as the impact of coronavirus on the UK economy becomes clearer in line with the release of official data statistics, which at present it lacks.”

IPA Director General Paul Bainsfair said, “While we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year.

“When recession looms it is understandable if businesses try and shore up short-term profits by cutting variable expenditure, such as advertising. However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high-risk strategy.”

The latest official UK advertising figures, from the AA and WARC, are due to be published Thursday 30th April.

Sourced from IPA's Bellwether Report