Total UK advertising expenditure is forecast to rise 4.2% this year, with the growth rate easing to +3.8% in 2017, according to the latest results from the AA/Warc Expenditure Report, released this week.

The latest projections follow the 4.3% growth recorded during the first quarter of 2016, when total UK adspend amounted to £5,007m. This was the first time more than £5bn was spent during a first quarter period.

Despite the encouraging headline result, our current full-year forecasts represent a downgrade from our expectations in April; revisions of -1.3 percentage points for 2016 and -1.7pp for 2017. The cuts owe to weaker-than-expected first quarter growth among some large sectors and a softer outlook for economic expansion following the UK's vote to leave the EU.

While adspend growth was recorded for the two largest media channels during Q1 2016 (pure play internet adspend rose by 15.2%, and TV spot by 3.3%), both newsbrands and direct mail, the UK's third and fourth largest media channels respectively, experienced a testing start to the year.

Advertising expenditure among all newsbrands fell 12.9% from Q1 2015 to £529m, according to Warc's quarterly survey of publishers. The total comprised an 11.3% decline in ad revenue among regional newsbrands, and a 14.4% fall for the nationals. In light of this, we have downgraded our full-year forecast for total newsbrand ad revenue to -9.9% (down 4.3pp since April), with ad receipts now expected to total £2.2bn at end-2016.

Further, advertising spend on direct mail was seen to reduce by 13.3% year-on-year to £424m in Q1 2016. The data show that the vast majority of this fall was recorded among SMEs; non-subsidiaries of the Royal Mail. Our full-year outlook for the direct mail ad market has been trimmed to a 7.2% contraction to reflect the first quarter results.

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Atop these elements, the uncertainty surrounding the UK's vote to leave the European Union has had to be factored into our ad market expectations for the next two years.

Consumer and business confidence levels have fallen sharply since the referendum, while the latest Global Marketing Index, a monthly tracker of marketer sentiment produced by World Economics, shows a steep fall in budget growth expectations and trading conditions across Europe.

We know from analysis of past data that the strength of the advertising market is linked to the state of the overall economy. Predicting the latter in light of the referendum result is no easy task, but we have taken the view that the UK will not slip back into a long period of recession.

Instead, real GDP growth is forecast at 1.6% this year, dipping to just 1.2% next year. This compares with actual growth of 2.9% in 2014 and 2.2% last year, and represents a downgrade from the Treasury's GDP outlook in April (previously +2.0% for 2016 and +2.1% for 2017).

Examination of historic Expenditure Report data shows us that the changes in real GDP account for approximately three quarters of the changes in real adspend (barring recruitment), if the dotcom crash year of 2001 is excluded.

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One consequence of the recent fall in the value of the pound is that inflation will rise as the cost of imported goods increases, and we have upwardly revised our CPI forecast to reflect this. Real growth in the UK ad market, therefore, will be dampened to 3.1% this year and 1.2% in 2017, though crucially, it will not turn negative.

Tim Lefroy, Chief Executive at the Advertising Association said: "These numbers suggest that despite uncertainty, our sector is resilient. Government can underpin that by taking every step possible to build advertiser confidence, promote the UK as a global advertising hub and ensure we remain open to the world's best advertising talent."