Steep decline in UK marketing budgets

Total marketing budgets contracted at the quickest pace since the survey’s data collection began 20 years ago, as the economic impacts of Covid-19 led to reductions across all types of marketing.

The net balance of companies that cut marketing budgets – the difference between those reporting increased and decreased spend – dropped to -50.7% in the second quarter of the year, from -6.1% the quarter before. It is the lowest level recorded by the Bellwether since -41.7% in Q4 2008, after the financial crisis. 

A net balance of -42.2% of marketers recorded lower funds for market research, including qualitative, quantitative, brand tracking and product development research, down from the previous quarter’s level of -21.0%. Almost half ( 48.4%) of respondents registered budget cuts, while 6.3% reported an increase in research spend.

In the second quarter, market research experienced a slower decrease than main media advertising (-51.1% net balance) and sales promotions (-51.2%), while events marketing saw the biggest cuts (-76.6%). Direct marketing and public relations were the least affected, but still recorded net balances of -41.6%.

Marketers were more downbeat about financial prospects than they had been in the first quarter, both for their own companies and the industry in general. Two-thirds reported a pessimistic outlook for their finances, compared with 11.5% who expected an improvement, leading to a net balance of -55.1%, while a net balance of -66.0% of companies were negative about industry prospects.

The Bellwether analysis forecasts a -11.3% reduction in advertising spend this year, but this is dependent on most sectors in the UK economy remaining open for the rest of 2020. Report author IHS Markit anticipates ad spend to return to growth next year (+6.0%). 

The report is based on a survey of around 300 companies, with respondents primarily marketing directors. 

Eliot Kerr, economist at IHS Markit and author of the report, said: “Given the steady flow of awful economic data that we’ve seen since the start of the UK lockdown, a further reduction to marketing budgets in the second quarter was anticipated. However, the sheer scale of the latest decline, unprecedented since we first started producing this report over 20 years ago, shows the catastrophic impact that this crisis has had. Despite the weak headline figures and the corresponding hardship, we do expect a strong bounceback in 2021.”

Paul Bainsfair, director general at the IPA, added: “As we suspected, these Q2 Bellwether figures reveal the very grave impact of Covid-19 on UK companies’ marketing budgets, financial prospects and employment plans.

“While the future trajectory of the economy is unpredictable, however, that of brands starved of marketing investment is much clearer. Our evidence from previous recessions and periods of buoyancy consistently shows that cutting marketing investment weakens brands in the near-term and limits growth and profitability in the long-term.”