IPA Bellwether Q3 2023: Budgets grow, PR booms as ‘shallow recession’ looms

stormy-weather-©Mark-johnson

The latest IPA Bellwether survey revealed another quarter of total marketing budget growth despite the prospect of a ’shallow recession’ on the horizon, with the PR sector growing at its strongest rate in five years..

The growth in budgets, extended the current sequence of upward spending revisions to ten successive quarters.

Moderation amid prospect of ‘shallow recession’

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

There was a strong proportion of the survey panel that expanded their total marketing spend in the third quarter of the year, with 21.1% of Bellwether firms increasing spending in the three months to October.

However, with a sizeable 15.8% registering downgraded budgets, this resulted in a net balance of just +5.3% (down from +6.4% previously), pointing to the weakest quarter of total marketing budget growth since the final quarter of 2022.

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Source: IPA Bellwether Report

Defensive manoeuvres

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.

Indeed, the main media advertising category was the strongest-performing segment of the Bellwether survey in Q3 as a robust net balance of +7.4% of companies upwardly revised spending in this crucial segment at the strongest rate in a year-and-a-half (-2.5% 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.

Main media

Within main media, other online advertising methods that aren’t captured by the other sub-categories rose sharply (net balance of +9.1%, vs. +8.3% previously) as companies engaged with new innovative tools such as artificial intelligence.

Video

Video (+0.9%, from +3.2%) and published brands (+0.8%, from -5.0%) were the other areas of expansion within main media, whereas audio (-10.8%, from -8.0%) and out of home (-12.1%, from -7.1%) saw contractions accelerate.

Events

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% of companies saw an increase in spending in this area (from +9.8%), with anecdotal evidence indicating a resilient appetite for engagement with clients and prospects face-to-face.

PR grows

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

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Source: IPA Bellwether Report

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%, from -6.8%), as did market research (-1.5%, from -2.9%).

Notably, after a record expansion in the previous quarter, the latest data indicated a renewed reduction in sales promotions spending (-1.5%, from +13.4%).

Economic Forecasts

According to S&P Global Market Intelligence’s latest forecast, the UK economy will expand in 2023 by 0.3%, an unchanged estimate from the previous Bellwether report.

However, the IPA said it has downwardly revised its growth forecast for 2024 to -0.1%, from 0.4% previously.

The 2023-24 growth outlook is lackluster as the full impact of the Bank of England’s interest rates rises has yet to materialise and inflationary pressures remain elevated.

The industry body said it actually expects the UK economy to endure a ‘shallow recession’ over this period. Subsequently, the IPA anticipate contractions in adspend of -0.6% and -0.4% in 2023 and 2024 respectively.

It won’t be until 2025 that we adspend will grow again in real terms, according to our October forecast, where it sees a modest recovery of 1.3% in annual growth terms as the UK economy picks up.

“We are currently predicting GDP growth of 0.9% in 2025, with a further improvement in 2026 as economic growth strengthens to 1.4% on a year-on-year basis,” the IPA wrote in its report, adding that, for 2026 and beyond, “we anticipate annual adspend growth accelerating back to a solid trend of 2.0%.”

Commenting on the latest survey results, Paul Bainsfair, IPA Director General, said: “Against a backdrop of economic stagnation and ongoing elevated levels of inflation in the UK, coupled with increasing global geopolitical volatility, the trading environment for companies is unquestionably tough.

“But instead of seeing a re-run of last quarter’s slightly concerning results where companies revised up their short-term sales promotional activity to record amounts while reducing their main media spend, this time we are buoyed to see a more considered, reverse state of affairs.

“This quarter, those companies that can are heeding the evidence that in general, investing more in main media will help to steady them through the uncertain times and help to ensure the longer-term health and profitability of their brands.

“Crucially, they – alongside the many investment analysts we have also recently surveyed – are recognising that marketing spend is indeed an investment not a cost.”

Joe Hayes, Principal Economist at S&P Global Market Intelligence, added: “As storm clouds gather over the UK economy, it’s encouraging to see total marketing budgets hold firm in expansion territory.

“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.”