IPA: optimism at eight-year high but dark clouds loom as Ukraine crisis worsens

The latest IPA Bellwether Report paints a picture of post-lockdown recovery, but the cost-of-living crisis and Russia's invasion of Ukraine darkens the palette.

IPA Bellwether: glimmers of light but dark clouds gather (Getty Images/Ian Forsyth)
IPA Bellwether: glimmers of light but dark clouds gather (Getty Images/Ian Forsyth)

Advertisers revised their marketing budgets upwards by the highest quarter-on-quarter degree in almost eight years during the first three months of 2022, optimism fuelled by a relative return to normality as Covid pressures abated, according to the latest IPA Bellwether Report.

However, dark clouds are amassing for brands and their agencies, amid a continuing rise in the cost of living, a situation set to be further exacerbated by Russia's continuing invasion of Ukraine.

According to the IPA's data, which is gleaned from a survey of about 300 UK-based companies, total marketing budgets were revised upwards by nearly a quarter (24.1%) of panellists, while 10.0% of companies reported budget cuts – both result in a net balance of 14.1% for the first three months of 2022, compared with a mere 6.1% balance in the fourth quarter of 2021. This was the highest increase since Q2 of 2014 and also the fourth successive quarter of marketing expenditure expansion.

With lockdown a fading memory and people re-emerging from their homes, and filling high streets, bars and restaurants, events enjoyed a resurgence as the top-performing marketing segment in Q1. "Living with Covid" was a huge boon for events, with a net balance of 18.7% budget expansion, rocketing up from -3.9% in the previous quarter. This trajectory was fuelled by confidence among companies to host larger-scale gatherings with clients and to set up exhibitions.

Main media experienced strong budget hikes (a net balance of 9.4% versus 3.1% in Q4 2021), helped by surges in other online (18.6%), video (9.0%) and published brands (1.3%).

But out of home and audio continued not to fare so well, with net balance declines of -4.6% and -8.5% respectively. Sales promotions were up 8.0% from 0.0%, direct marketing expanded 6.0%, up from 3.8%, while PR saw minimal expansion, up 0.6% in Q1 compared with 2.0% in Q4 2021.

But an overall hike in total marketing budgets was hit by a downturn in market research (-3.5%, down from 7%), and "other", which accounts for any other form of paid-for marketing not specified in the IPA's questionnaire (-0.9%, from -11.22%).

Tentative growth

With an eye to the future, those marketers surveyed were largely positive about the outlook for 2022/23, with 43.8% anticipating growth in their own marketing spend, compared with 10.6% who expect cuts – a net balance of 33.1%.

All marketing segments monitored in the report are set to receive budget expansions, with events again at the vanguard (22.1%), followed by main media (20.1%), direct marketing (14.0%) and sales promotions (13.6%). "Other", PR and market research are also predicted to grow (by 11.1%, 10.2% and 8.6% respectively).

Eye to the storm

But sentiment among business leaders tends to presage a hit to budgets, and on that basis there is reason for concern. Companies were relatively positive about their own prospects – 31.5% were upbeat versus 24.9% who were pessimistic, resulting in a net balance of 6.6%. But this marked a fall from the 7.6% balance of Q4 of 2021 and is the weakest since the third quarter of 2020, during the nadir of the pandemic.

Interestingly, and a sign perhaps of self-regarding bullishness, marketers were less positive when it came to assessing the prospects of their industry as a whole. More than a quarter (27.4%) of marketers were negative, while 23.9% were positive. This resulted in a net balance of -3.6%, a figure only marginally better than that of Q4 2021 (-3.8%), marking the second-greatest degree of pessimism for more than a year.

As the world rallied post lockdown, it was hit by several ill winds. High inflation, affecting everything from the price of fuel and energy to groceries, and Brexit hangovers, such as supply chain disruption and labour shortages, are all factors that are set only to worsen due to Russia's invasion of Ukraine.

Accordingly, IPA Bellwether Report author S&P's GDP forecasts for 2022 and 2023 have been revised downwards to 2.8% and 1.2% respectively (from 4.0% and 1.8%), which will hit adspend growth, with forecasts down to 3.5% and 1.8% (2022 and 2023), from 5.2% and 2.5%.

Looking even further ahead, there is little sign of improvement. The report projects GDP and adspend growth revised up to 1.2% and 1.7% respectively (from 0.9% and 1.3%), but this is due to the differential between a now-weakened outlook for 2023.

Paul Bainsfair, IPA's director general, noted that with Covid "restrictions ending, it is clear that UK companies are keen to capitalise on this moment and ramp up their marketing spend".

He continued: "This is welcome news now, but we know we face soaring inflation levels, cost of living increases, supply-chain issues, all exacerbated by the war in Ukraine and some sector recruitment shortages.

"With 40 years of downturn data to learn from, the IPA knows beyond doubt that brands do best when they maintain their investment in longer-term brand-building media, complemented by a smaller ratio of sales activation media. This is the survival code for surviving a downturn."

Joe Hayes, senior economist at S&P Global and the report's author, added: "We've seen strong upward revisions to marketing budgets in a clear sign that companies are gearing up for growth. Events budgets, which saw a particularly strong uplift, were a notable beneficiary of the UK government's new Covid-19 model.

"That said, risks to the economic outlook have built substantially so far this year. Living costs are rising, we may see inflation get close to, or even hit, double digits in the coming months and this will weigh on purchasing power. Supply-chain issues are still prevalent and have been exacerbated by the war in Ukraine. Rising geopolitical tensions also create uncertainty, and it may lead to companies re-assessing their decisions until all of these risks reduce."

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