Companies curb advertising spending in the UK ahead of the Budget

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Companies have “paused” any rise in their advertising spending in the UK ahead of the Budget, as they brace for the risk that higher personal taxes will sap consumers’ purchasing power, according to an industry trade body.

Marketing budgets have flatlined for the first time since the pandemic as executive confidence drops, the IPA, which represents media and advertising agencies, said on Thursday. The period between July and September was the first time in 14 quarters that total marketing budgets failed to grow, it found. 

“Negative hype surrounding the impending Budget has no doubt created choppy waters for UK companies and their marketers to navigate,” said IPA director-general Paul Bainsfair. 

“This quarter’s results reveal that companies aren’t cutting their marketing budgets; they are pressing pause until they know more about the government’s economic plans.”

The quarterly IPA Bellwether Report reveals UK companies’ marketing spend intentions and confidence levels, an economic indicator given companies tend to spend more on marketing when optimistic or when the economy is growing.

The third quarter findings show that the percentage of UK businesses increasing their marketing budgets — 21.6 per cent — was exactly the same as those cutting them. In the second quarter of the year, the difference between businesses raising and cutting budgets was 15.9 per cent.

The IPA Bellwether Report is based on responses from 300 UK-based companies about their marketing activities. The IPA represents about 270 agencies in the UK.

The IPA also said that it was “a significant shift in behaviour from the robust growth observed over the previous 13 quarters”. Attitudes towards their own companies’ and their industry’s prospects turned negative after about two years of optimism, its research found. 

The IPA said that better economic growth forecasts for 2024 were tempered by higher prices, the elevated cost of borrowing and prospects for an increase in personal taxation for many UK households.

Fergus McCallum, chief executive of Manchester-based advertising agency TBWA\MCR, said that “having won a clear mandate to govern without fear of electoral challenge, the new government now finds themselves actively trying to be both the party for ‘working people’ and the party for business”.

He added: “We’re yet to see how they can manage that tricky balancing act but it’s already causing uncertainty as can be seen in the latest Bellwether Report — a set of numbers clearly suggesting a ‘let’s wait and see’ attitude from business.”

Within the total, there were some positive areas, with spending increasing on public relations, events and direct marketing. 

Richard Exon, founder of advertising agency Joint, said: “The advertising industry knows the pressure that falls on it from jittery brands. The real proof of the long-term impact will come in the next [report] but for the time being it’s more of a hesitation than a decline in spend.”