UK marketing budgets shrank further in Q3, although at a less drastic rate than in the record-breaking previous quarter, the latest data shows.

The coronavirus pandemic and subsequent lockdowns have led to sharp falls in ad spending across all categories, the latest IPA Bellwether Report reveals.

Its survey of around 300 UK-based companies shows the mood to be generally negative, about both own-company financial prospects and the industry generally. However, UK marketing budgets do indicate that this year’s dramatic contraction could be followed by a strong recovery next year.

In Q3, over half of respondents (52.6%) reported a decrease in budgets from three months ago, compared to only 11.6% who saw an increase.

Respondents commonly cited reduced revenue as a result of the pandemic as the reason for budget cuts, and the need to cut costs accordingly to maintain profit. In addition, the need for social distancing meant that many businesses were still operating below full capacity in the third quarter. This especially affected service companies that rely on face-to-face engagement.

The events sector remains the hardest hit of the advertising categories monitored, with over two-thirds of companies seeing advertising budget cuts and just 3.8% of respondents seeing an increase.

At the other end of the scale, direct marketing and main media advertising saw the smallest budget cuts.

Turning to own-company financial prospects, businesses remained pessimistic during the third quarter, with only 30.7% of those surveyed saying they were more optimistic than three months ago; overall, however, the respondents were the least pessimistic they have been so far this year, and this also showed in views on the prospects for the industry as a whole.

The COVID-19 pandemic and the restrictions on businesses have led IHS Markit, the Bellwether authors, to predict steep falls in a number of economic indicators in 2020, and it forecasts GDP shrinking by 11.2% for the year.

On the basis that restrictions stay as they currently are, a 13.2% fall in consumer spending is forecast, along with a decline of 20% in business investment in 2020. This corresponds to a Bellwether forecast of a -23.3% fall in ad spending for the full year.

A second wave of infections along with an associated lockdown would significantly change these forecasts.

Further ahead, IHS Markit analysts see a strong economic recovery in GDP of +4.6% next year as firms further adapt to a new normal. Bellwether forecasts growth in ad spend next year of +11.3%.

The two big unknowns, however, that could throw these forecasts off course are the evolution of the pandemic and the outcome of Brexit negotiations before the end of the transition period on 31 December.

Sourced from IPA