IPA releases latest Bellwether Report

According to the Q4 IPA Bellwether Report, while the UK economy is widely expected to have entered a technical recession at the end of the year, the data signalled another quarter of total marketing budget growth across the final three months of 2022.

The IPA report the findings as follows:

Around one-fifth of survey respondents upwardly revised their total marketing spending in the fourth quarter (20.2%), while 18.0% registered budget cuts. Overall, the net balance recorded in positive territory for the seventh successive quarter (+2.2%) and marked the longest uninterrupted sequence of growth for four years. Overall, growth was little changed from Q3 (net balance of +2.1%).

Growth by category in Q4 2022

Events (net balance of +5.7%, vs. +4.5% previously) was the top-performing Bellwether category in Q4. Meanwhile, main media marketing saw a return to growth (net balance of +4.4%, vs. -3.1%). In terms of the breakdown for main media, the data showed video (net balance of +13.7%, vs. +8.7%) and other online (net balance of +6.3%, vs. +9.3%) driving growth. Audio budgets were unchanged (net balance of 0.0%, vs. -2.0%), while published brands and out of home saw declines (net balances of -3.9% and -8.8%, vs. -11.2% and -7.6% respectively).

The remaining Bellwether categories saw a continuation of negative trends in the fourth quarter. Direct marketing saw a marginal reduction again (net balance of -0.6%, unchanged from previously), while PR budgets were cut modestly (net balance of -1.9%, vs. -4.8%). Sales promotions budgets struggled as companies were concerned about margins (net balance of -4.0%, vs. -7.5%). Lastly, market research (net balance of -8.8% vs. -4.1%) and other marketing activities not already accounted for (-10.1%, vs. -10.5%) saw budgets contract.

Budget Plans 2023/24

The outlook for marketing budgets in the 2023/24 financial year was strongly positive, preliminary data from our Bellwether panellists showed.

A large proportion of surveyed companies (39.5%) expect total marketing budgets to be higher in 2023/24, while only 15.3% anticipate spending cuts. This led to a strongly positive net balance of +24.2%, indicating a robust outlook among UK marketers.

Indeed, optimism towards budgets was seen across all seven broad Bellwether categories, preliminary data showed. Expectations of budget growth were the strongest for events (net balance of +18.0%) as companies continue with their efforts to re-engage with existing clients and prospects face-to-face. Companies also took a strongly positive view on the outlook for main media marketing (net balance of +13.4%). Elsewhere, firms were also positive towards sales promotions (net balance of +7.9%), despite margin pressures. Direct marketing, PR, other marketing activities and market research (net balances of +5.8%, +3.7%, +2.4% and +2.0% respectively) are also poised for moderate budget growth.

Financial prospects fall further in anticipation of more challenging economic conditions

Business sentiment among Bellwether panellists remained inside pessimistic territory during the fourth quarter of 2022, reflecting downbeat expectations for the year ahead as a persistence of high inflation, increased interest rates and low consumer confidence raise the prospect of a UK recession.

According to the latest figures, 41.8% of respondents adjudged the financial prospects within their specific industry as a whole to have worsened when compared to the three months prior. This dwarfed the 8.7% of companies that were optimistic on the outlook for their sector. The subsequent net balance of -33.2% was less negative than previously (-44.3%), but nonetheless the second-most pessimistic assessment of industry-wide prospects since Q2 2020.

Similarly, Bellwether panellists were negative on their company-own outlook in the fourth quarter. The proportion of respondents that were more downbeat than three months ago (32.8%) was over double the proportion feeling more optimistic (15.6%). That said, the net balance did increase slightly from the third quarter, up to -17.2% from -27.6%, indicating a reduced level of negativity.

Adspend to weaken in 2023 but growth to resume next year

High inflation, rising interest rates and weak consumer confidence create an intensely challenging environment for businesses and households alike. Subsequently, the economy is likely to endure a recession in the first half of this year.

Bellwether authors S&P expect GDP to shrink in 2023 by 0.8% as household incomes are squeezed by inflation. Private consumption is also likely to be adversely impacted by falling house prices and rising borrowing costs. Consequently, S&P expect retrenchment to occur as companies weather the storm, leading adspend to decline by a modest 0.3% in 2023.

That said, S&P are currently predicting a short and shallow recession in the UK. Moderate growth should return in 2024, underpinned by falling inflation, recovering demand in key export markets and a reduction in borrowing costs as the Bank of England cuts interest rates. S&P are predicting GDP growth of 0.6% in 2024, and a recovery in adspend (1.2% annual rate of growth).

Beyond next year, S&P’s GDP growth forecasts are slightly higher than in the previous report (1.3% and 1.5% for 2025 and 2026, compared to 1.2% and 1.4% previously). As such, Bellwether predicts adspend growing by 1.8% and 2.0% respectively in 2025 and 2026.

Commenting on the latest survey Paul Bainsfair, director general, IPA: "Given the immediate outlook for the UK economy has deteriorated since the previous Bellwether Report, this quarter’s results are most welcome. While understandably cautious, they are nonetheless in positive territory.

"We can see that the companies that can are holding their nerve and continuing to invest in marketing through the downturn, with supporting anecdotal evidence from the report also revealing that a lot of companies who are concerned about losing market share to competitors have either maintained or increased their spend accordingly. This indicates that marketing is being used both defensively and offensively.

"It is particularly good to see positive revisions to main media budgets this quarter which is helping to drive the overall upward figure, fuelled particularly by investment in video advertising." Paul Bainsfair, Director General, IPA.

Joe Hayes, senior economist at S&P Global Market Intelligence and author of the Bellwether Report: "The latest Bellwether survey provided some interesting insights into how UK companies are planning to navigate an impending UK recession. Another quarterly expansion in total marketing budgets at a time when business costs have hit multi-decade highs and consumer confidence has plunged suggests many businesses understand the importance of investing in resources that will help them get through the downturn as best as possible."

Amy Lawrence, digital director, MediaCom & Chair of the IPA Digital Marketing Group: "After fairly grim reading in the last report, it is especially heartening to see that main media budgets are forecast to expand (+4.1%), demonstrating that despite economic gloom and the ongoing cost of living crisis, brands know that ongoing investment in marketing will bring long term benefits. Noticeable is the huge increase in forecast video spend, within main media, at +13.7%, the highest since this metric was tracked, with “other online” also seeing increases. Once again it is testament to the need to continue to invest in both brand and performance, and to maximise flexibility."

Alex Uprichard, managing director, IMA-HOME and IPA City Head for Leeds, Yorkshire and Humberside: "2023 was never going to be a walk in the park. Rising costs and the impact on consumer spending power mean it’s no surprise that the latest Bellwether Report indicates continued shrinkage in GDP (-0.8%) along with a decline in adspend (-0.3%.) However, the heartening element to the report was substantial evidence this will be a ‘short and shallow’ recession, with data supporting a return to growth in 2024.

"Even more encouraging? The Q4 2022 growth and predicted 2023 growth in the main media and events categories. It indicates an exciting courage in a strong contingent of marketers doubling down on the challenging market conditions. They’re zeroing in on making more human connections, protecting their position and even growing market share when more cautious competitors are pulling back. This is definitely a stance we have been working through with many of our clients. Fortune often favours the brave and it’s all to play for right now."

Gill Jarvie, client services director, Republic of Media and IPA Chair for Scotland: "It is heartening to see Main Media returning to a position of growth, reporting a 4.4% upward revision in quarter four and interesting to see this has been driven primarily by Video. Good to hear that the outlook is positive with 39.5% of companies expecting 2023/24 budgets to be higher. This is hopefully a sign that businesses are recognising that marketing is an important tool to navigate what will hopefully be a short, shallow recession.”

Richard Aldiss, managing director, McCann Manchester and IPA City Head for Manchester and the North West: "The most recent data from Bellwether highlights some interesting insights into how brands and businesses are reacting to the current climate and navigating the much-reported economic downturn.

Richard Aldiss, managing director, McCann Manchester: "It is encouraging to see many North West brands reporting steady performances over the last quarter, demonstrating the region’s business resilience. In a region that is known for its excellence in performance marketing we have to make sure we are also promoting and delivering the capabilities and strengths in longer term brand strategy and effectiveness.

"The year ahead will, of course, be challenging but as an industry there is a huge opportunity to demonstrate our value and ability to be strong business partners for our clients."

The full report is available to purchase from the IPA.