Thought Leadership

Bellwether brightens January with optimistic outlook

Report reveals the UK marketing industry ended 2023 on a high, recording the strongest growth for a decade.

Nicola Kemp

Editorial Director Creativebrief


“I suspect both agencies and clients will be breathing a sigh of relief when reading this quarter’s report.” Sue Benson, Managing Director at The Behaviours Agency and IPA City Head for Manchester & North West, perfectly articulates the jitters that have accompanied the start of 2024.

With 2023 bringing with it unprecedented agency consolidation, continued staff churn and layoffs in the technology sector, the wheels are already falling off the fairy tale of eternal economic growth.

In this challenging environment, the latest Bellwether Report will be welcome reading. Total UK marketing budgets were revised up to their strongest level in almost a decade in Q4 2023. The latest results indicate that despite the intensely challenging backdrop for UK businesses, many companies opted to continue to invest in marketing, instead of withdrawing into cost-saving mode.

Slightly over a 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. This equates to its highest level since Q2 2014. This means that marketing budgets have expanded for 11 consecutive quarters, the longest uninterrupted period of sustained growth since 2018.

Benson added: “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.”

Cautious optimism

While seasoned marketing forecasters are missing the ‘bath shaped’ recoveries predicted by S4C Capital head honcho Sir Martin Sorrell, today’s leaders leave it to the finance team to plot the shape of recovery and lean into the language of ‘cautious optimism.’

That pendulum swing between caution and optimism is still swinging widely in parts of the industry, reflected in the qualitative insight of the Bellwether. 

Notably at a time of year when employees get itchy feet in their careers, cautious contributors pointed to the ‘ability to attract quality talent’ as a threat to the industry. Other contributors pointed to decreasing marketing budgets and defensive finance strategies, the recession and consumers' lack of disposable income all contributing to a bear market.

However, optimistic respondents focused on the opportunities created by growing confidence post-COVID-19, the housing market recovery, AI and lower inflation as all opportunities for the year ahead.

Economic headwinds

In real terms, adspend is set to decline in 2024. For the year as a whole, S&P’s forecast is for a 0.1% contraction 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).

The experience economy

The post Covid experience economy continues to boom and an upward revision to events marketing budgets was recorded again in the final quarter of 2023. Almost 18% of companies anticipate growth in events marketing budgets.

The increase was also sharp, and the best recorded of all Bellwether sub-categories. Rising to +15.9%, from +5.9% in the preceding quarter, the net balance posted its best reading since the second quarter of 2022. Exactly 26.8% of panellists signalled an upward revision to events budgets, compared to just 10.8% that signalled a downward revision. 

Another core growth sector was 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%).

Bullish budgets

The 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.

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%).

Confidence in building brands in shrinking sectors

Notably, the latest Bellwether data underlined a disconnect between company and sector financial prospects in the final quarter of 2023. In essence, many respondents expressed concern for the outlook of their sector as a whole, coupled with belief their own company would grow.

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.

Paul Bainsfair, Director General of the IPA, explained: “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.”

He continued: “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, added "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 long-term 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."

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