Report reveals the UK marketing industry ended 2023 on a high, recording the strongest growth for a decade.
“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.”
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.
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 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%).
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%).
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."
Industry leaders have their say on the latest Bellwether report
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 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.
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.
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 proactive approach in ‘24 and seeing opportunity where others find problems is a steadfast strategy for growth.
Dom Boyd, Managing Director for Insights, Kantar UK
Businesses are kicking the new year off with a sense of optimism around their futures and there’s certainly plenty of opportunity to drive growth. But with news this week that inflation isn’t slowing as quickly as we’d hoped and the IPA showing that ad spend is expected to dip in real terms, we’re not out of the woods yet.
Advertisers and marketers need to make sure that creative is working harder to really set their brand apart from the competition and deliver better returns on investment. Our research shows that campaigns which are based on strong, familiar ideas can improve performance by as much as 64%, so consistency should be a priority to build that sense of difference. For brands, it should not be a case of ‘new year, new me’. Stick to your knitting!
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