With almost all severe pandemic-related restrictions at an end, UK marketing budgets have grown at their strongest rate in more than four years, according to the latest IPA Bellwether report.
A net balance of 12.8% of firms registered upwards budget revisions in the third quarter of 2021, up from 6% in the second quarter. This is the fastest rate of growth for marketing expenditure since the second quarter of 2017.
Approximately one in four respondents to the survey reported higher spending (25.6%), compared with just 12.8% that observed budget cuts. The figures also mark the first time in three years that successive quarters of growth in marketing spend has been seen.
Notably, market research has registered marginal growth, with a net balance of 0.7% of firms planning to increase their budgets. The proportion planning to increase spend in market research has only been greater than the proportion planning to decrease it four times in the past seven years, and the last time was back in the second quarter of 2015, when a net balance of just 0.6% said they would increase investment.
In fact, last year Marketing Week discovered that market research has been on a resolutely downward trend ever since, with that decline accelerating over the course of Covid-19. The net balance of marketers saying they planned to cut spend plummeted to a nadir of 42.2% in the second quarter of 2020.
By the first quarter of 2021, a net balance of 17.8% of marketers were still planning cuts, though that dropped to 9.6% by Q2.Market research spend slumps as shift to digital and Covid hit
According to the Bellwether, most surveyed firms recognised the need to drive forward with marketing activity in the third quarter, as consumers look to spend pent-up savings and the effectiveness of the UK vaccination programme became apparent.
Marketers are also feeling bullish about the prospects of their businesses, with the report recording the strongest level of optimism regarding own-company finances since the first quarter of 2015.
A net balance of 37.5% of firms (versus 34.6% previously) were more optimistic about the financial prospects for their own company, while around 48% of firms expect stronger growth than they did three months ago. Just 11% were less optimistic.
Bellwether panellists also shared an increasingly positive outlook on the wider industry, with a net balance of 22.6% of firms reporting a more upbeat view than three months ago.
“We couldn’t have imagined such a fast recovery in economic activity earlier in the year when lockdown measures were at their most stringent,” says Joe Hayes, senior economist at IHS Markit and the author of the Bellwether report.
“We’re expecting UK GDP to have recouped all pandemic-related losses by no later than mid-2022, and Bellwether panellists have provided us with even more evidence that firms are working hard to regrow their businesses.”
However, upward revisions to total marketing budgets still fell short of the growth firms had initially predicted for the 2021/22 financial year, where a net balance of 17.4% of companies expected expansion.
According to IPA director general Paul Bainsfair, there were “widespread concerns” among Bellwether panellists that supply shortages and issues with transport could hinder their business operations, and also impact their sales performances as many firms pass on these higher costs to their prices.
Main media advertising drives growth
Broken down further, the Bellwether reveals that main media advertising was the best-performing marketing category in the third quarter, with a net balance of 8.6% of businesses recording upward budget revisions compared to 1.3% in Q2.
Within main media, video drove the biggest boost (12.6%), followed by ‘other online’ (10.6%) and audio (6.0%). Published brands returned to growth (5.2%), although out of home once again saw the net balance of firms planning to increase spend drop (2.0%).
“Advertisers are making the most of the overall economic uptick and are seizing the opportunity to invest in their brands,” Bainsfair adds. “As the evidence shows, investing in long-term brand building media is paramount to a brand’s long-term success.”
Looking at GDP growth, Bellwether author IHS Markit has revised forecasts for 2021 and 2022 higher since the last survey, to 6.6% and 5.1% respectively, with adspend growth to similarly reach 6.6% in 2021 and 6.2% in 2022.
IHS Markit expects rates of growth in both GDP and adspend to normalise from 2023 onwards. GDP forecasts for 2023, 2024 and 2025 stand at 2.4%, 1.7% and 2.9% respectively. Growth is likely to slow in 2023 as pandemic-related losses are expected to be fully recouped no later than mid-2022, while tax burdens are also set to rise in 2023.