Marketing budgets were revised up in Q3 2016 to the highest rate in over two years as companies continued to invest in marketing despite Brexit uncertainty, reveals the Bellwether Report published on 12th October 2016.

The Report, which has been conducted on a quarterly basis since Q1 2000, revealed a net balance of +13.4% of companies registering an increase to their budgets during Q3 2016. This is up from +10.7% in Q2 and marks a fourth year of successive positive revisions. (The net balance is calculated by subtracting the percentage recording a downward revision from the percentage recording an upward revision.)(1)

Financial prospects

Despite positive revisions to budgets, the uncertain economic and political climate had a noticeable impact on financial prospects during the third quarter of 2016.  Industry financial prospects remained negative, with the net balance falling to -12.1%. That is down from -8.1% and the third successive reading below zero (meaning a greater proportion of panellists have become more pessimistic than optimistic over the past three months). This was the lowest recorded by the survey since Q4 2012.

Panellists were, however, a little more optimistic about their own company financial prospects during Q3. Over 31% of panellists have grown more optimistic, compared to less than 21% that indicated a more pessimistic tone, resulting in a net balance of +10.6%. However, that was down from +13.7% in the previous quarter and the lowest recorded by the survey since Q4 2012.

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Adspend forecast growth

Reflecting the overall upward revision to budgets, yet decrease in confidence, Bellwether has updated its forecasts for adspend in 2016, and now predicts some modest growth for the year as a whole (+1.9%). This is up from the Q2 Bellwether prediction of -0.2% growth and in line with expectations for a more robust UK economic performance following the initial shock to activity from the EU referendum vote.

 Bellwether does, however, predict that 2017 is set to be a more challenging year, with adspend expected to decline by -0.7% as business investment is pared back in line with the uncertainty over the negotiated terms of the UK withdrawal from the EU. This is expected to also weigh on consumption, with higher prices from the depreciation of sterling set to reduce household purchasing power and also undermine spending.

Adspend is set to show modest signs of recovery in 2018 with Bellwether projecting growth of +0.2%, followed by a return to more solid expansion in 2019 (+2.4%) and 2020 (+2.7%).

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By sector

Events enjoyed the strongest sub-category growth in Q3 2016 with a net balance of +9.9% the second highest in the four years of data collection for this category (beaten only by the +13.4% in Q2 2016). Internet budgets also continued to rise during the third quarter to +9.5% during the quarter. This marks over seven years of upwards revisions, although this was slightly lower than Q2’s +10.9%. Within internet, Search/SEO recorded a net balance of +7.3% for Q3, but Mobile posted -2.6% (this is the first time Bellwether has reported mobile as a subsection). Direct marketing budgets were also revised up, recording a reading of +4.9%, the highest level for a year-and-a-half.

Several sub-categories did however record net falls in budgets over the quarter, perhaps most notably Main media advertising. The respective net balance fell to -3.8% in Q3 2016, down from the previous quarter’s two-year high of +9.3% and the first decline since Q1 2013. Further categories to record reduced budgets included PR (-1.1%), Market research (-2.3%), Sales promotions (-4.0%) and ‘Other’ (-6.3%).

Paul Bainsfair, IPA Director General, said: 

“With marketing budgets revised up to their highest degree in over two years, we can say that marketers have held their nerve in the face of Brexit uncertainty. It is also pleasing that in light of this, Bellwether is now predicting a positive forecast for adspend growth for 2016. As the negotiated terms of UK withdrawal from the EU will become clearer in 2017 Bellwether predicts a more challenging year. We are certainly living through interesting times.”

Paul Smith, Senior Economist at IHS Markit and author of the Bellwether Report:

 “Given the widely held view of a challenging economic climate following the Brexit vote in late June, the latest Bellwether survey provides some welcome positive news with companies willing to raise and inject fresh resources into their marketing budgets during the third quarter.

“The outlook remains uncertain, especially when trying to understand what the impact of the EU referendum vote will be, and financial prospects have somewhat softened as a result. However, a number of companies are looking through the uncertainty and see a new range of opportunities for their businesses to grow and flourish with.”

Join the conversation on Twitter at #BellwetherReport

 

The article was originally published on IPA website, and republished in the CXM with their consent.

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Notes   [ + ]

1. The Bellwether Report is researched and published by Markit Economics 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. The 8-page 12 October 2016 edition is available to purchase from the IPA website for £99+VAT (IPA members) and £140+VAT (non-members) as an immediately downloadable PDF. To sign up for an annual subscription, or to request historical data, contact economics@markit.com.

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