The latest IPA Bellwether Report, published today, reveals that total UK marketing budgets were revised up in Q3 2023, extending the current sequence of upward spending revisions to 10 successive quarters. The quarter’s overall growth was driven by upward revisions to the main media category.

The report also reveals that there was, however, a moderation of the upturn, as persistent inflationary pressures, further increases in borrowing costs and a subsequent deterioration in the UK economic outlook drove some companies to be more cautious with their budgets.

While 21.1 per cent of Bellwether firms increased their total marketing spending in the three months to October, a sizeable 15.8 per cent registered a downgraded budget. This resulted in a net balance of +5.3 per cent, pointing to the weakest quarter of total marketing budget growth since the final quarter of 2022 (down from +6.4 per cent in Q2).

Growth by category in Q3 2023
According to panel members that registered growth, marketing activities were deployed both as a defensive and offensive manoeuvre, with some hoping to reinforce their brand's position in the market ahead of a downturn in the UK economy. Efforts to seize additional market share was seen at companies who were seeing key competitors prioritise short-term cost-savings over long-term business growth.

Supporting this, the main media advertising category was the strongest-performing segment of the Bellwether survey in Q3, as a robust net balance of +7.4 per cent of companies upwardly revised spending in this crucial segment at the strongest rate in a year-and-a-half (-2.5 per cent previously). This contrasted markedly with the Q2 report, where sales promotions budgets drove the upturn, as cost-of-living pressures drove companies to provide support to cash-strapped customers. Within main media, other online advertising methods that aren't captured by the other sub-categories rose sharply (net balance of +9.1 per cent, vs. +8.3 per cent previously) as companies engaged with new tools such as artificial intelligence. Video (+0.9 per cent, from +3.2 per cent) and published brands (+0.8 per cent, from -5.0 per cent) were the other areas of expansion within main media, whereas audio (-10.8 per cent, from -8.0 per cent) and out of home (-12.1 per cent, from -7.1 per cent) saw contractions accelerate.

Events continued to be an area of marketing budget growth in the third quarter, continuing its strong sequence of expansion seen in every Bellwether Report since the opening quarter of 2022. A net balance of +5.9 per cent of companies saw an increase in spending in this area (from +9.8 per cent), with anecdotal evidence indicating a resilient appetite for engagement with clients and prospects face-to-face.

Other areas of budget growth included direct marketing (net balance of +4.3 per cent, from +7.3 per cent) and public relations (+4.0, from -1.9 per cent). In fact, PR spending rose at the strongest pace in five years.

Meanwhile, spending cuts were recorded in the final three segments of the Bellwether survey. Other modes of marketing activity not accounted for continued to see budgets cut in the third quarter (net balance of -7.9 per cent, from -6.8 per cent), as did market research (-1.5 per cent, from -2.9 per cent). Notably, after a record expansion in the previous quarter, the latest data indicated a renewed reduction in sales promotions spending (-1.5 per cent, from +13.4 per cent).

There was little material change in company-own and industry-wide financial prospects during the third quarter of 2023, with sentiment among respondents remaining generally subdued.

When assessing the financial prospects for their own business, Bellwether firms were optimistic, albeit only modestly, with a net balance of +5.2 per cent of companies reporting stronger sentiment than three months ago. Positively, just over a quarter (25.4 per cent) of respondents were more upbeat on their financial outlook. This was offset considerably, however, as 20.2 per cent signalled weaker confidence. The vast majority of companies (54.3 per cent) reported no change in their assessment of financial prospects. Nevertheless, the latest data marked an improvement compared with the second quarter, when a net balance of just +2.6 per cent registered more upbeat expectations.

In contrast, the industry-wide outlook remained negative during the third quarter, with the proportion of panellists that were downbeat towards the outlook for their sector (24.9 per cent) over double the proportion who were positive (12.1 per cent). The resulting net balance of -12.7 per cent was little-changed from the previous quarter (net balance of -12.6 per cent) and signalled the greatest degree of negativity towards overall industry financial prospects in the year-to-date. 

According to report author S&P Global Market Intelligence's latest forecast, the UK economy will expand by 0.3 per cent in 2023, an unchanged estimate from the previous Bellwether Report. It has, however, downwardly revised its growth forecast for 2024 to -0.1 per cent, from 0.4 per cent previously. The 2023-24 growth outlook is lacklustre as the full impact of the Bank of England's interest rates rises has yet to materialise and inflationary pressures remain elevated. As such, S&P Global expect the UK economy to endure a shallow recession over this period. Subsequently, for Bellwether, it anticipates contractions in adspend of -0.6 per cent and -0.4 per cent in 2023 and 2024 respectively.

It won't be until 2025 that S&P Global forecasts ad spend to grow again in real terms, according to this October forecast, with expectations for a modest recovery of 1.3 per cent in annual growth terms as the UK economy picks up. It is currently predicting GDP growth of 0.9 per cent in 2025, with a further improvement in 2026 as economic growth strengthens to 1.4 per cent on a year-on-year basis. for 2026 and beyond. As a result of this, for the Bellwether Report, S&P Global anticipates annual adspend growth accelerating back to a solid trend of 2.0 per cent.

"As storm clouds gather over the UK economy, it's encouraging to see total marketing budgets hold firm in expansion territory,” said Joe Hayes, Principal Economist at S&P Global Market Intelligence and author of the Bellwether Report. “We saw last quarter that firms had become concerned by persistence of the cost-of-living crisis, which drove a record rise in sales promotions spending. In the latest quarter, however, firms have gone back to brand-building, with anecdotal evidence suggesting that this move has been made both defensively and offensively. With demand conditions coming under pressure, companies will have to position themselves strongly to stand out from their competitors.”