Economic uncertainty hits advertising budgets

Faltering economic confidence is hitting spending on corporate marketing, as missed sales targets and rising raw material costs have prompted advertising budget cuts for the second consecutive quarter.

Only internet advertising bucked the downward trend, as online budgets increased a net 21 per cent, according to the Institute of Practitioners in Advertising’s Bellwether Report, a survey of UK marketing sentiment published on Monday.

Advertising is often the first budget to face cuts when companies hit problems, so the report is seen as a leading indicator of economic growth. NTC Economics, a research group, polls a panel of 300 companies, drawn from the UK’s top 2,000 advertisers, every quarter for the IPA.

Although marketing spending is still expected to rise overall during 2008, 21 per cent of companies reported budget cuts during the first three months. That compares with 19 per cent that said they had increased spending plans.

The net downward revision is small but represents a reversal in confidence among advertisers. Six months ago the survey revealed some of the strongest budget increases in its eight-year history. Marketers setting budgets in the first three months of 2008 were more pessimistic than the previous quarter, according to the report’s author.

“Suddenly the outlook for 2008 has deteriorated quite markedly,” said Chris Williamson of NTC Economics. “These numbers aren’t consistent with a recession, [but] they are consistent with an easing of growth in the economy as a whole.”

Mr Williamson said the situation was not as concerning as the last big budget cuts in 2005, with downward revisions less severe than in the fourth quarter. But he added: “We think there’s worse to come.”

“Clearly, consumer confidence is a problem,” said Jim Marshall, chairman of Starcom, an advertising agency owned by Publicis. “The advertising fraternity is being very cautious and loathe to make firm commitments, especially in the second half of the year.”

Consumer goods manufacturers, utilities and the media were the companies most likely to report reduced budgets. NTC found that the steepest budget cuts were in direct marketing, sales promotions and corporate events and hospitality – with internet marketing spend the prime beneficiary.

The survey comes after figures showing 38 per cent growth in UK internet advertising last year over 2006.

A report by PwC, the professional services firm, for the Interactive Advertising Bureau, found UK advertisers spent £2.8bn online in 2007. With the medium representing 15 per cent of the total advertising market – already more than press classifieds and regional newspapers – the IAB expects online to overtake TV advertising spending by the end of 2009.

Guy Phillipson, chief executive of the IAB, said display advertising online, such as banners and videos, was “enjoying something of a renaissance”. “Core formats in display are now growing at a faster rate than search [marketing],” he said, but text advertisements alongside search results on sites such as Google and Yahoo still commanded the bulk of online spending.

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