U.K. Ad Budgets Slashed, Online Clings by Its Fingernails

In the past three months, U.K. advertising budgets have been cut more drastically than at any other point in the past nine years, according to the quarterly Bellwether report conducted by the IPA (Institute of Practitioners in Advertising) and Markit Economics.

The report, released today, also suggests that the Web was by no means immune to these cuts, as the robust growth the medium has enjoyed over the past seven years was brought to a grinding halt.

The survey found that just 12 percent of the companies questioned reported an upward revision to overall ad budgets, while 35 percent reported cuts during Q3. The 16 percent of companies that reported an upward revision to their online budgets was matched by an identical number reporting a decline, resulting in the medium’s weakest growth period for seven years. All in all, the rate of growth for online ad spending was flat compared to the previous quarter.

Overall however, online budgets remained the only marketing activity covered by the report to avoid a reduction in spend. Although this hardly makes up for its stunted growth, it does indicate an increase in total ad spend share.

Recent reports have suggested that in times of financial hardship, marketers will increasingly turn to paid search to deliver more measurable results. According to the IPA, however, even search spending has slowed dramatically, achieving only very modest growth in Q3. Increased search spend was reported by 14 percent of companies whereas 13 percent reported a decrease.

In July, the IPA’s Q2 survey signalled that online spend was beginning to slow substantially, reporting just a 6 percent budget increase in Q2, compared with a 21 percent rise in Q1 over the previous quarter. In reference to the final quarter of this year, Moray MacLennan, IPA president, and M&C Saatchi Chairman, Europe, stated, “The industry will be watching with great interest hoping that, following four quarters of decline, the downward curve levels off, despite the impending recession.”

Companies involved in the survey attributed budget cutting to lower than anticipated sales and profits — in turn reflecting weaker consumer and corporate demand, as well as growing concerns about the economy.

Chris Williamson, chief economist at Markit Economics, and the author of the report is not particularly optimistic about the months ahead; he stated, “These data are consistent with the economy contracting in Q3 and raise the possibility of the U.K. falling into recession.

MacLennan added, “I doubt these gloomy results come as news to anyone. In light of current headlines the biggest surprise is that 12 percent of companies’ budgets were revised upwards.”