According to the IPA, this increase in internet budgets has fuelled a robust growth in overall marketing budgets; however, rising wider economic uncertainty has had a noticeable impact on companies’ financial prospects during Q2 2017.
The Q2 survey showed that around a third of the survey panel recorded an increase in internet marketing budgets (32%), against a little over 9% of panellists that recorded a fall. That provided a resulting net balance of +22.7%, which was up sharply since Q1 2017’s +16.9% and the highest reading since Q3 2007. Within internet, search/SEO (+15.6%) and mobile (+3.0%) both continued to record upward revisions to growth. The increase in spending related to search/SEO was the highest recorded by the survey for two-and-a-half years.
In a wider context, the report, which has been conducted on a quarterly basis since 2000, reveals the growth in internet budgets has driven overall marketing budgets up. Over 28% of the survey panel recorded an upward revision to marketing budgets, compared to around 15% that recorded a fall. The resulting net balance of +13.1% was up from Q1 2017’s +11.8% and the best recorded since Q3 2016. The net balance has now been above neutrality, which signals that more companies are expanding their marketing budgets than reducing them, for just one quarter short of five continuous years.
Other categories to record upwards revisions to budgets include main media advertising albeit to a slightly softer degree than in the preceding quarter (net balance: +9.8%, down from +10.7%); PR (+2.1%); and events (+2.1%). The latter has now recorded an increase in marketing budgets in each of the past 15 quarters. All of the remaining categories covered by the Bellwether survey, showed reductions in budgets during the second quarter of 2017, including ‘Other’ (-2.6%), direct marketing (-4.7%) and market research (-6.2%). However, the most notable reduction in budgets came from sales promotions which recorded a net balance of -10.7%, down on the previous quarter’s +1.2% and the weakest level recorded by the survey since Q2 2010.
Financial prospects
Despite overall growth, the latest report found that the upturn in uncertainty following the surprising outcome of the recent general election, allied with the unknown effect on economic activity of the Brexit negotiations, had a noticeable impact on financial prospects during Q2 2017.
Although 30% of the survey panel are more optimistic regarding their own financial prospects, over 20% have become less confident. The resulting net balance of +9.8% was down from +13.9% in the preceding quarter and the lowest recorded by the survey since the end of 2012.
Wider industry financial prospects turned increasingly negative. Over 26% of the survey panel signalled a reduction in optimism compared to three months ago when considering the financial prospects for their industry (14% indicated more confidence). The resulting net balance of -12.6% compared to -5.7% in Q1 2017 and was the second lowest reading in four-and-a-half years (after Q4 2016’s -14.6%).
Economic forecasts
With no update from the Office for Budget Responsibility (OBR) since the previous Bellwether survey, the report’s annual adspend forecasts for the years through to 2020 are unchanged. Driven primarily by an underwhelming performance in business investment, which is forecast to be depressed by the ongoing uncertainty caused by the UK’s decision to leave the European Union, Bellwether expects adspend to rise by just 0.6% in real terms during 2017.
Also weighing on adspend performance will be softness in consumer spending with signs from high frequency indicators of consumption that rising inflation and an associated squeeze on household purchasing power is already weighing on consumer spending. This is expected to continue throughout the rest of 2017 and into 2018, and is a primary factor behind the expected stagnation of adspend next year.
Bellwether anticipates a somewhat recovery to take place during 2019 and 2020, with adspend forecast to rise by 1.8% and 2.3% respectively.
Says Paul Bainsfair, Director General, IPA: “The election result has thrown further uncertainty into an already volatile environment. It is inevitable that this has had a knock-on effect on UK plc. Specifically for marketers this has meant a desire, where possible, to seek out more activation driven advertising. As evidenced strongly in this latest Bellwether Report, this has resulted in a further move towards advertising in the digital space. While it is good to see spend up in internet, it is worth remembering that IPA studies have consistently shown that the most effective marketing results from a 60:40 brand building (emotional) to sales activation ratio (rational).”
Says Paul Smith, Senior Economist at IHS Markit: “The Bellwether survey continues to perfectly encapsulate the present economic situation presiding in the UK. Current economic conditions are sufficiently strong enough to support higher sales and demand, encouraging firms to provide product support through ongoing marketing budget expansion. However, the uncertainty caused by Brexit and a surprising general election outcome are skewing risks to future growth broadly to the downside resulting in subdued financial prospects, both at the company and wider macro levels.”
The Bellwether Report is researched and published by IHS Markit on behalf of the IPA. First published on the 17th July 2000, it features original data drawn from a panel of around 300 UK marketing professionals and provides a key indicator of the health of the economy.
