Media release: Marketing budgets revised upwards but Omicron slows growth, reveals IPA Bellwether Report

UK companies revised their total marketing budgets up in the fourth quarter of 2021, marking a third successive quarter of expansion, reveals the IPA Bellwether Report published today (20 January 2022).

A net balance of +6.1 per cent of companies upwardly revised their total marketing budgets at the end of last year as recovery efforts from the pandemic continued. That said, amid the emergence of the Omicron strain of COVID-19, heavy supply-chain disruption and strong inflationary pressures, total marketing budget growth slowed from the third quarter of 2021 (net balance of +12.8 per cent).

Nevertheless, the latest data was still a robust result by comparison to recent years and signalled the second-strongest improvement since the opening quarter of 2019.

Growth by category in Q4 2021

Market research (net balance of +7.0 per cent) was the top performing category in the latest survey period, reflecting efforts by businesses to better understand the impact that the COVID-19 pandemic has had on their existing clients and target audiences.

Overall, market research enjoyed its strongest performance since this category of marketing was first tracked by Bellwether over nine years ago. Direct marketing registered the next strongest expansion in budgets, with a net balance of +3.8 per cent, followed by main media advertising (+3.1 per cent).

Within main media, we saw growth in video (+7.3 per cent) and other online advertising (+4.5 per cent), but budget cuts in published brands (-5.9 per cent), audio (-6.3 per cent) and out of home (-8.3 per cent). Public relations was the final main category to register in growth territory during the fourth quarter (+2.0 per cent), as sales promotions budgets (0.0 per cent) stagnated. Meanwhile, events (-3.9 per cent) and other (-11.2 per cent) marketing budgets registered cuts.

Budget plans 2022/23

Preliminary data regarding spending plans for 2022/23 suggest that marketing budgets are on track for considerable growth as businesses step up their recovery efforts from the COVID-19 pandemic. A net balance of +34.5 per cent of surveyed companies are planning to expand their total marketing spend in the coming 2022/23 financial year.

Indeed, close to half (45.7 per cent) of Bellwether panellists were optimistic of budget growth, compared to just 11.2 per cent expecting spending cuts.

Of the seven broad types of marketing activities, of which all registered in positive territory, events was the strongest performer, reflecting firms’ expectations of looser pandemic-related restrictions. A net balance of +19.0 per cent of surveyed companies are expecting higher events budgets in the coming financial year.

Sales promotions budgets are also set for strong growth, with a net balance of +17.9 per cent of firms planning to expand their spending here.

Main media marketing – which includes ‘big-ticket’ advertising campaigns relating to TV and radio – is also expected to receive strong budgetary support, as a net balance of +17.4 per cent of firms anticipate spending growth. Finally, Direct marketing (+15.5 per cent), other (+10.6 per cent), PR (+9.6 per cent) and market research (+7.4 per cent) are also areas of marketing which businesses expect to see spending grow.

Business sentiment eases amid COVID-19 flareup, supply-chain disruption and rising inflation

Following several months of strong optimism among Bellwether companies, latest survey data showed a notable easing in sentiment at the end of 2021.

The net balance of panellists that were more optimistic towards the financial prospects of their own company fell from +37.5 per cent in the third quarter to +7.6 per cent in the fourth quarter. This marked the least confident outlook in own-company prospects since the net balance swung back into positive territory at the end of 2020. While

31 per cent of respondents foresee financial improvements at their businesses, around 23 per cent were less optimistic.

Meanwhile at the industry-wide level, surveyed firms were more pessimistic towards the financial outlook compared to three months ago. Close to 28 per cent of companies were downbeat, more than offsetting the 24 per cent of respondents who had grown in confidence.

The resulting net balance of -3.8 per cent was the first negative reading since the fourth quarter of 2020.

2022 adspend forecast lowered, but strong growth still anticipated

Since the last survey, the Bellwether has downgraded its forecast for 2022 UK GDP growth. Although at the time of writing, the UK has fallen short of implementing any form of lockdown restrictions, the rapid spread of the Omicron variant has had a notable impact on consumer confidence and activity within parts of the economy, particularly the hospitality and leisure sector. Rising inflation, which is damaging purchasing power, disrupted supply chains, as well as issues with recruitment due to shortages of suitably-skilled and available staff have also presented fresh risks to growth.

Consequently, Bellwether has lowered its annual adspend growth forecast to a still-strong 5.2 per cent, from 6.2 per cent.

From 2023 onwards, Bellwether expects more modest rates of growth as momentum from the economic recovery peters out. We anticipate GDP growth to slow in 2023 and 2024 and forecast annual expansions of 1.8 per cent and 0.9 per cent respectively, in part reflecting the impact that rising tax burdens will have on consumption levels, as well as tightening interest rates.

Regarding adspend, 2023 growth is forecast at 2.5 per cent (vs. 2.4 per cent previously), and 1.3 per cent, 2.3 per cent and 2.5 per cent in 2024, 2025 and 2026 respectively.

Commenting on the latest survey, Paul Bainsfair, IPA director general, said: “It is very welcome news that UK marketing budgets continue to be revised upwards. As we can see, however, Omicron has heightened uncertainty, altered consumer behaviour and subsequently impacted UK companies’ marketing budget decision making. Going forward, new variants – alongside supply chain issues and heightened inflation – may indeed induce further wobbles.

“They key for businesses to weather these fluctuations will be, where possible, to invest in the longer-term and in brand-building media. As the evidence proves, brands that continue to invest in their marketing throughout the toughest of times come out on top.”

Joe Hayes, senior economist at IHS Markit and author of the IPA Bellwether Report, added: “It’s encouraging to see another quarter of marketing budget growth, despite the numerous headwinds businesses faced at the end of 2021. The emergence of the Omicron variant saw a modest tightening of restrictions across the UK, but some key overseas markets, such as those in the EU, saw more stringent measures. On balance, however, it appears that many companies are doing their best to adapt to the ‘new normal’.

“That said, the overall expansion did slow amid sharp inflationary pressures. Another risk to businesses is rising cost burdens, which have been inflated by higher energy and transport prices, increasing wages and raw material shortages, and has inevitably led to some belt-tightening. Regardless, firms are pressing ahead with their bullish spending plans as close to half (45.7 per cent) of Bellwether panellists expect to increase marketing budgets in the coming year.”

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Contact: Sylvia Wood

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