IPA releases latest Bellwether Report

Total UK marketing budgets were revised up to their strongest level in almost a decade in Q4 2023, according to the latest IPA Bellwether Report. The latest results indicate that despite the intensely challenging backdrop for UK businesses, many companies opted to remain proactive in the market, instead of withdrawing into cost-saving mode.

The IPA report the findings as follows:

Slightly over one quarter (26.0%) of panellists saw total marketing budgets rise in the fourth quarter of 2023, more than double the proportion registering cuts (11.3%). The resulting net balance of +14.7% was up sharply from +5.3% in the third quarter of last year and its highest since Q2 2014. This subsequently extended the current sequence of expansion in total marketing budgets to 11 quarters, the longest uninterrupted period of sustained growth since 2018.

Growth by category in Q4 2023

Events was the best-performing sub-category of marketing in the final quarter, recording a strongly positive net balance of +15.9%, its highest in a year-and-a-half (up from +5.9% in Q3). A notable finding was in direct marketing, which saw its greatest upturn (net balance of +12.6%, from +4.3%) since the opening quarter of 2005. These two categories were the principal drivers of total marketing budget growth at the end of 2023 as expansions of a more modest nature were seen in PR (net balance of +1.9%, down from +4.0), main media (+1.9%, down from +7.4%) and sales promotions (+1.4%, from -1.5%).

The slowdown in main media compared with a strong performance in the third quarter, where the category was the top performer. Underlying data revealed mixed trends, with other online advertising (net balance of +13.2%, up from +9.1%) and video (+6.6%, from 0.9%) contrasting with contractions in published brands (-1.4%, from +0.8%), audio (-7.0%, from -10.8%) and out of home (-8.1%, from -12.1%).

Just two of the seven Bellwether categories recorded a contraction in budgets in the final quarter – market research (net balance of -5.0%, from -1.5%) and other (-6.4%, from -7.9%).

Outlook for 2024/25 total marketing budgets remarkably strong according to preliminary budget setting data

Latest survey results showed budget expansions at 44.5% of respondents, around triple (15.1%) those that were restricting spending plans in the 2024/25 period. Consequently, a net balance of +29.4% of companies with stronger budgets than the last financial year showed a robust outlook for UK marketing.

Optimistic preliminary budget setting was seen in five of the seven Bellwether categories. Events is expected to have another strong year, with a net balance of +17.8% boosting their budgets for 2024/25, while direct marketing also appears to be an area of focus (net balance of +16.8%) after a strong fourth quarter revision. Encouragingly, main media is also set for a strong performance (net balance of +14.2%). The two remaining areas of expansion in 2024/25 are PR (net balance of +10.6%) and sales promotions (net balance of +8.2%).

As was the case for 2023/24, budget setting or the other marketing category was unchanged (0.0% net balance), while market research was the sole area expected to see budget cuts (net balance of -1.0%).

More optimism towards company-own prospects

The latest Bellwether data showed a widening of the divergence between company-own and industry-wide financial prospects during the final quarter of 2023, with firms feeling more bullish towards growth prospects compared to three months prior, but still remaining concerned towards the outlook for their sector as a whole.

Looking at the industries they operate in, 13.8% of surveyed companies were more optimistic than they were in the third quarter of 2023. However, this was more than offset by the 26.5% of respondents signalling a lack of confidence in the outlook. As a result, the net balance registered -12.7%, which was unchanged from Q3 (and also compared with -12.6% in Q2). Overall, business sentiment towards industry-wide financial prospects have been stuck in firm pessimistic territory for over two years.

This contrasted markedly with Bellwether firms' sentiment towards their own businesses. Just shy of one third of respondents (32.4%) were feeling more upbeat compared to three months ago, whereas 19.8% were gloomier. At +12.6%, the net balance was at its most positive since the third quarter of 2021.

Adspend to fall in real terms in 2023 and 2024

Since the last Bellwether report, there has been little change made to S&P Global Market Intelligence's forecasts for the UK economy. Real GDP is expected to rise by 0.5% in 2023, a touch higher than the 0.3% forecast it had pencilled in the Q3 edition. However, this is a lacklustre expansion, with the UK economy expected to enter a technical recession in the fourth quarter of 2023.

In turn, the UK economy is expected to begin 2024 in a shallow recession, and the outlook for the year is challenging. For the year as a whole, S&P’s forecast is for a 0.1% contraction (as was also the case in our Q3 forecast), as high borrowing costs and still-elevated inflationary pressures constrain economic activity. Consequently, S&P forecast adspend declining in real terms in both 2023 and 2024 (by 0.6% and 0.7% respectively).

For the second half of 2024, however, the economy should return to growth, for which S&P’s ad spend forecast outlook for 2025 and beyond is more positive at 1.1% in 2025 and stronger expansions in 2026 through to 2028 (1.7%, 1.9% and 1.9% respectively).

Commenting on the latest survey:

Paul Bainsfair, director general, IPA: "Despite the challenging economic climate, this quarter’s upbeat Bellwether findings show that companies are heeding the evidence that continuing to advertise through the tough times can help maintain brand loyalty and protect the long-term health of their brands.

"However, we also saw anecdotal feedback that some companies noted plans to price their goods and services more competitively in a bid to gain market share. While this is good news for the consumer, it is further proof that companies are experiencing a tough trading environment."

On this point, with the evidence showing that investing in advertising helps protect sales when businesses raise prices, it may prove more profitable for companies to increase their advertising than reduce their pricing.

Joe Hayes, principal economist at S&P Global Market Intelligence: "The resilience of UK marketing continues to be at odds with the worsening economic climate businesses are facing. Instead, companies are demonstrating the foresight to maintain a longterm view towards their brands, maintaining a healthy level of investment in the tools to stave off competition, retain clients and win new business. The UK economy is expected to endure a shallow recession, which will end in the first half of 2024, and our data clearly show more companies are prepared to ride out the bumps to put themselves in a strong position when the recovery phase kicks in than those that aren't."

Mark Howley, COO, Publicis Media and chair of the IPA Media Futures Group: “The Bellwether Report indicates a shift from caution to quiet optimism. Consumer confidence is on an upward trajectory, UK GDP figures show shallow growth (growth none-the-less), interest rates are dropping, VC investment rising and inflation is more-under-control. Indeed, underlying corporate growth and margins are extremely strong. So I think you will see brands invest for growth and invest for the future, which is the overall sentiment in the report. The main media investment increases predicted (+14.2% across 24/25) reflects this optimistic outlook. And I think it will be across all media; so audio, OOH and publishers perhaps faring better going forward than in the immediate past. And history shows us that the quadrennial occurrence of Olympics, Euros, US election normally creates a positive surge – quiet optimism is definitely the call.”

Patrick Reid, Group CEO, Imagination: “The latest Bellwether report reveals a resilient marketing landscape in the UK. Total budgets are on the upswing, marking the most significant jump since 2014. We are excited to see the events sector taking centre stage, boasting a +15.9% surge - the highest in almost two years. As we’re seeing again this year with our clients, events stand out as the only category to score a higher net balance than other online marketing, underscoring brand's growing commitment to creating impactful in-person experiences.

“With +17.8% of companies planning an increase in events marketing budgets for 2024/25, the momentum shows no signs of slowing down this year. This showcases the ability to navigate and thrive in an ever-changing landscape, with experiences proving resilient as a key part of the evolving marketing mix for brands.”

Richard Aldiss, managing director, McCann Manchester and IPA chair for England & Wales: “I draw a lot of confidence from the data that shows businesses and brands taking a long-term perspective on marketing investment, despite the continuing challenging economic climate.

“Adopting a pro-active approach in ‘24 and seeing opportunity where others find problems is a steadfast strategy for growth.”

Gill Jarvie, client services director, Republic of Media and IPA chair for Scotland: “Encouraging that the final quarter was strong although disappointing that the strong performance of Main Media in Q3 (+7.4%) has come down to 1.9% in Q4 indicating that the return to brand over short-term tactical activity over isn’t quite there yet. Talking to a number of agency owners in Scotland, the start of the year has not been an easy one with many large clients reducing budgets so it will be interesting to see if the optimistic budget plans for 2024/25 come through.”

Sue Benson, managing director, The Behaviours Agency and IPA city head for Manchester & North West: “I suspect both agencies and clients will be breathing a sigh of relief when reading this quarter's report. We have another fun packed year ahead of us - recessionary pressures, an election, the Olympics and Euro’s all set to try our marketing resilience. Plus, we’re seeing evidence of consumer behaviour changes that were born out of the cost-of-living crisis now becoming a habit. Marketers need to use this newfound optimism and possible budget upweights to double down on brand investment, ensuring their brands deliver on the value exchange with their customers.”

Alex Uprichard, managing director, IMA-HOME and IPA city head for Leeds, Yorkshire and Humberside: “The Q4 Bellwether report is a welcome indicator for the year ahead given there is notable expectation for growth in marketing budgets for 24/25!

“It's great to see this confidence despite ongoing economic uncertainties. Clearly the prospect of opportunity and potential for growth is winning out in budgetary decision making.

“The continued increase in investment in events and direct marketing also suggests we’re in for some really exciting work in 2024. It’s something we’re already seeing from our retail clients - a focus on one-to-one connections with consumers through experiences that offer both value in the moment and reward loyalty over time.

“That long term view is so important as consumers will remember the brands who were there in tougher financial circumstances when spending restraints ease.”

Gareth Evans, MD, Cogent and IPA city head for Birmingham and the Midlands: "We have reason to be cautiously optimistic. While few predict a bumper harvest in 2024, the data shows there may be green shoots appearing. The predicted ‘shallowness’ of the recession may be instilling confidence to increase marketing investment, with an eye on Peter Field’s research into the demonstrable advantages of investing in advertising through a downturn.

“‘Cautiously’ may remain the operative word, however. We are still sailing in relatively rough seas. Overall economic growth is slow, and seismic elections on both sides of the Atlantic are likely to lead to vigilance until the dust settles. Closer to home, the nation is still feeling pressure on the household purse, and the effectiveness vs efficiency debate rolls on among the daily challenges marketers face. The opportunities are there – we as an industry need to find ways to take them responsibly and sustainably.”

Helen Blakley, managing director, Genesis and IPA chair for Northern Ireland: “It is encouraging to see a solid finish for marketing budgets as 2023 came to a close, with an overall positive approach to investing in marketing spend. This looks to continue into 2024 with a net balance of +29.4% of companies looking at a stronger budget than the last financial year.

“Locally, the recent Ulster Bank survey suggested that Northern Ireland's private sector returned to growth in December but prospects for the year ahead are muted. The current lack of NI Executive may impact this stability and affect the ability of the public sector to plan more effectively as the new financial year approaches. The NI labour market has remained strong throughout 2023 with unemployment at record low levels, so there has been a continued need to focus on the development and retention of an agency’s team through a strong people-focussed culture, supported by an innovative mindset which is future focussed and adds value to their own and their clients’ business.”

The full report is available to purchase from the IPA.