UK marketing budgets expand for first time in year and a half

Q2 2021 Bellwether Report

Total UK marketing budgets expanded for the first time since Q4 2019 and to the sharpest extent since Q1 2019 in the second quarter of 2021, according to the latest IPA Bellwether Report.

Financial prospects at company and industry level also remain firmly in positive territory and adspend forecasts are revised higher for 2021, as businesses began to prepare for a strong economic recovery.

A net balance of +6.0% of surveyed companies expanded their total marketing budgets during the second quarter. Just over one-in-five (21.2%) panellists registered growth, compared to 15.2% that reported a decline. This was the first time since the fourth quarter of 2019 that total marketing expenditure had been revised up. Furthermore, it was the sharpest increase since the beginning of 2019 and a notable contrast to the net balance of -11.5% of firms last quarter that had recorded spending cuts. The latest results bring to an end a five-quarter sequence of continual cuts to overall marketing spend.

According to anecdotal evidence from the survey panel, strong vaccination uptake and the end of virus containment measures supported expectations of an economic recovery. Many firms are also anticipating strong sales as consumers unleash demand which has been pent-up over the course of the pandemic. That said, some erred on the side of caution and were uncertain of the impact of new strains of the virus. Others were also concerned that consumer behaviours may not return to what they were before the pandemic and were unsure on the best way to position their business in this event.

Revisions by media category

Three categories of marketing spend recorded upward revisions during Q2. Public relations led the upturn with a net balance of +1.8% of firms growing their expenditure in this space (up from -8.0% in Q1). The key segment of marketing, main media, also recorded growth in the second quarter. A net balance of +1.3% of businesses raised their main media budgets (up from -8.2% previously). Within main media, video (+4.2%, from +3.3%), audio (+1.1%, from -9.0%) and other online advertising (+11.0%, from 0.0%) all grew, while published brands (-6.1%, from -22.2%) and out of home (-7.5%, from -24.1%) budgets were downwardly revised.

Elsewhere, latest data signalled a slight uptick in direct marketing budgets (+0.7%, from -11.8%), while sales promotions (-0.7%, from -16.2%), market research (-9.6%, from -17.8%) and other (-2.5%, from -14.7%) marketing expenditure were all cut. Given the continued restrictions on large gatherings that were in place during the second quarter, it was no surprise to see events budgets (-24.7%, from -43.2%) register by far the strongest decline of the monitored forms of marketing.

Firms remain strongly positive towards company and industry prospects

Latest survey data signalled further robust optimism among Bellwether panel members towards both their industry-wide and company-specific financial prospects, as was also the case in the opening quarter of 2021.

With +45.9% of panel members becoming more optimistic regarding their company's financial prospects compared to three months ago, and only +11.4% signalling pessimism, the resulting net balance of +34.6% indicated a strong overall level of confidence. Although the net balance was slightly lower than in the first quarter (+36.6%), it was nonetheless the second-highest reading since the first quarter of 2015.

Similarly, financial prospects at the broader industry level remained firmly in positive territory during the second quarter of 2021. A net balance of +21.1% of surveyed companies were more bullish versus three months ago. Again, the level of optimism was robust overall and only bested by the reading in the first quarter (+26.2%), which was the strongest for six-and-a-half years.

Adspend forecasts revised higher amid successful vaccination rollout

In light of the UK's successful vaccination programme and phased re-opening of the economy, the Bellwether Report is now anticipating a much stronger expansion in GDP this year, followed by a robust rate of growth in 2022. Indeed, increased savings during the lockdowns are likely to fuel a brisk recovery in household spending once the COVID-19-related restrictions end, and the extended furlough scheme has delivered resilient labour market conditions.

Consequently, the Bellwether Report anticipates 2021 and 2022 to record strong rates of growth in adspend. It has pencilled in expansions of 7.5% and 6.0% respectively as businesses recover to their pre-pandemic levels of activity. Beyond the next 18 months, it foresees adspend growth moderating to 2.7% in 2023 once the UK economy has recouped the pandemic-related losses, and then adspend growth of 1.2% and 2.4% in 2024 and 2025 respectively.

That being said, there are a number of risks to these forecasts. New variants of COVID-19 could undermine the effectiveness of the vaccine, and job losses once the furlough scheme ends could impact consumer spending. There are also strong fiscal challenges on the horizon given the immense cost of economic support during the pandemic, which is likely to see tax burdens on businesses and households increase.

Commenting on the latest survey:

Paul Bainsfair, Director General, IPA:

"These positive results mark the end of five quarters of continuous cuts. For revisions to UK marketing budgets to bounce back so quickly and strongly, following their nadir at the height of COVID-19 restrictions in Q2 2020, is very welcome news and corroborates our Bellwether prediction for a V-shaped recovery. As the vaccination rollout continues at pace and UK plc gears itself up for growth, we encourage companies to ramp up their advertising to make the most of post-lockdown, pent-up consumer demand."

Joe Hayes, Senior Economist at IHS Markit and author of the Bellwether Report:

"The economic data that has emerged in recent weeks tell us that UK businesses have embarked on what we hope will be a short road to recovery. The Q2 2021 Bellwether report was no different, and the strongest upward revision to total marketing spend since the beginning of 2019 is a great indication that firms have grown confident towards economic prospects. We hope that this is just the beginning and the end of lockdown restrictions, further improvements in vaccination rates and buoyant consumer spending will support even stronger growth in marketing spend in the second half of the year."

David Shearer, Managing Partner, MediaCom Edinburgh and IPA Chair for Scotland:

"As the so-called ‘Freedom Day’ (well, not quite yet outside England!) fast approaches with its attendant loosening of restrictions, it is hugely encouraging to see UK businesses getting ready for a strong economic recovery in the second half of 2021. Understandably, there are lingering concerns over the potential impact of the recent upsurge in coronavirus cases and new strains but broadly confidence is steadily improving due to rising vaccination rates and anticipation of a full re-opening of the UK economy. This is being reflected in forecasted advertising expenditure levels and I’m certainly hopeful that the predicted pent-up consumer demand will continue this road to recovery."

Valerie Ludlow, CEO, ASG & Partners and IPA Chair for Northern Ireland:

"After over 16 months of learning to live and work in a pandemic, I am delighted to see that the Q2 2021 Bellwether Report shows real signs of positivity and confidence in our economic future. There’s no doubt that there are still concerns within the business community, but the building momentum of the recovery is outweighing them for the first time in many months. We must always remember that what we have experienced over the last year has not been a ‘market failure’, it has been driven by a most dreadful pandemic."

Michelle Wright, Managing Director, Gough Bailey Wright and IPA Chair for England & Wales:

"After eighteen months of uncertainty there is finally something to be optimistic about. It’s truly refreshing to see real evidence of growing confidence in businesses as they prepare for a strong economic recovery and invest into their marketing programmes.

"With over half of the UK population fully vaccinated and further relaxing of lockdown restrictions, brands are clearly looking to increase market share and strengthen communications with their customers, this is evident in the report with PR enjoying the highest upturn of expenditure during Q2, since Q4 2019.

"There is understandably some caution around new strains of the virus and customer behaviour, but if the situation continues to improve, these forecasts suggest we can look forward to a more stable and brighter future."

Amy Lawrence, Digital Director, MediaCom & Chair of the IPA Digital Marketing Group:

"After such a difficult 2020, it is fantastic to see the optimism in this Bellwether Report. It is no surprise that this is reflected especially in digital budgets, as the industry continues to recognise the shift towards ecommerce, and focuses on performance goals. Although there are reasons to be cautious as we leave behind many of the pandemic restrictions, increased consumer spending means we should be confident that this trend will continue."

David Fletcher, Chief Data Officer, Wavemaker UK:

"Pretty much every business has worked out that the future will still have an office – a consistent gathering point and source of common interest and identity – but that there are other ways of doing these things. Some of these are quite good to have in the mix so sure, let’s have an office but maybe make it a bit smaller? The latest Bellwether data suggests that the Market Research sector is suffering the same dynamics – still needed for marketing but not the only way of doing things now that the pandemic has taught us other routes to blend in for insight and effectiveness."

For additional information, please purchase the full Q2 2021 report (£99+VAT for IPA members, £140+VAT for non-members) that also has content detailing threats and opportunities facing marketers and their companies over the coming 12 months. The report includes charts comparing business confidence among survey panellists to wider economic output, which depicts how views on financial prospects are a function of the current business environment. Annual subscription is available by contacting economics@ihsmarkit.com

Purchase the full Q2 2021 IPA Bellwether Report
Last updated 14 July 2021