UK marketing budgets have increased by the highest levels in a decade, in line with a “brightening economy” and decreasing levels of inflation.

The latest quarterly IPA Bellwether report reveals a significant uplift in marketing budgets across all main categories,  the strongest upward revision since the first quarter of 2014.

Of the companies surveyed, a net balance of 15.9% reported increased budgets in the second quarter, compared with 9.4% in the first quarter.

Principal economist at S&P Global Market Intelligence Joe Hayes says the General Election had the potential to generate “decision-making paralysis”. However, this was not the case.

“A strong performance by the UK economy so far this year, in tandem with falling inflation and the expectation of an imminent interest rate reduction by the Bank of England, has helped lift confidence, providing more fertile grounds for companies who wish to invest in their brands and position themselves for long-term growth,” he says.

Return to growth

Since the last report in April, main media budgets, which include video, audio, published brands and out-of-home (OOH), have returned to growth following a –0.7% decline.

Main media budgets increased by 3.5% – the most upbeat figure since Q3 2023 – as 14.8% of panellists revised their main media spending upwards, outweighing the 11.3% of firms which downgraded their spend.

However, the latest uptick in main media marketing expenditure fell short of surveyed companies’ expectations for the 2024/25 financial period, which showed a net balance of 10.1% predicting spending growth in this category.

Events continued to be the main area of marketing budget growth, up 17.2%. Although this marks a dip from 23.1% in Q1, investment in events marketing has consistently increased every quarter since early 2022.

Following last quarter, market research budgets increased for the second time in a row, reaching 3.2%, compared to 1.4% in Q1, making the second highest increase since 2021.

Sales promotions budgets grew for the third consecutive quarter – rising from 4.4% in January to 6.9% – signalling brands’ ongoing strategy to cut prices in a bid to drive sales. This latest quarterly increase in promotional sales has exceeded the projections made by Bellwether panellists for their 2024/25 budget, with a net balance of 6% anticipating further growth.

The leap in promotional spending set alarm bells ringing for Kantar’s managing director of insights, Dom Boyd. Pointing to major sports events like the men’s Euros as a driver of promotions, he warns brands should avoid getting “addicted” to deals.

“While cutting prices can provide a short, sharp sales boost, it rarely delivers long-term profitability and growth,” says Boyd. “Marketers should protect their brands’ pricing power at all costs and use budgets to enhance, not chop away at it.”

However, IPA director general, Paul Bainsfair, says while inflation levels have come down, this hasn’t yet translated into prices and strains on many household finances still exist.

“Companies would benefit from being cognisant of this in terms of their communications approach and messaging to their consumers. I suspect that those brands that can bestow their sense of value, trust and reward will fare well here,” he adds.

The era of price-led profit growth is coming to an end

Direct marketing also continued to flourish, with budgets increasing for the sixth quarter in a row from 7% to 8.9%. Nearly a fifth (19.3%) of surveyed businesses raised their available spend for direct marketing in Q2, nearly double the 10.4% that recorded a decrease.

PR budgets were raised to the strongest degree since the third quarter of 2023 – registering a 2.6% increase – up from 0.6% in Q1.

Within main media budgets, increases occurred in only two of the five sub-categories: other online and video. Other online saw a net balance of 15.3%, marking the strongest upward revision in this segment since Q1 2022 and a significant rise from the start of the year (net balance of 7.1%). Video also experienced growth, with a net balance of 7.8%.

The remaining categories either stagnated or contracted. OOH recorded a 0.0% net balance, while audio (net balance of -5.5% from -4.5%) and published brands (net balance of -6.3% from -5.7%) registered slightly stronger decreases.

Other, which includes paid-for marketing activity, was the only category that registered a downturn, decreasing from –3.4% in Q1 to –7.6% in the latest survey. That said, the majority of panellists (84.8%) kept their marketing budgets unchanged for the quarter.

Positive company-own outlook

Elsewhere, Bellwether companies registered the greatest degree of confidence towards company-own financial prospects in almost three years.

While the proportion of companies that were more optimistic towards financial prospects at their own company remained broadly unchanged since the first quarter at 29%, negative sentiment fell, with 15.4% expressing pessimism (compared to 19.5% previously). As a result, the respective net balance increased to 13.6%.

However, the negative trend toward overall industry financial prospects persisted in the second quarter. While one-fifth (20.1%) of the Bellwether panel noted a downbeat forecast, 16% were optimistic about their industry’s financial outlook. The subsequent net balance of -4.1% was the least negative since the opening quarter of 2022.

The condition of the UK economy has improved so far in 2024. That said, while the mild recession experienced at the end of last year may have ended, recovery headwinds persist, the report suggests.

According to Bellwether, elevated borrowing costs, dwindling government financial support and persistently high food and energy prices are a few risks that continue to dampen the economy, particularly household finances.

As such, Bellwether is still expecting to see some caution from businesses. S&P Global Market Intelligence anticipates ad spend to flatline in 2024 when compared with last year.

However, this does mark an improvement from the forecast in the first quarter, when ad spend was predicted to contract by an annual rate of 0.5%.