Ad market set to slow down in UK

The UK advertising market is set to slowdown this year after falling retail sales put the brakes on company spending, causing one influential player to downgrade its 2011 forecasts.

GroupM, a media investment management company, yesterday predicted that advertising spending in the UK would rise just 1.5 per cent this year. The forecast has been lowered from previous estimates of 3.3 per cent.

The company said that while it had always expected 2011 to be tougher than last year’s 9 per cent recovery, it had been forced to reduce its December forecasts because “the year has proved harder going”. It pointed to Deloitte estimates that household income was at the same level as 2008 thanks to wage deflation, which is “set to get worse before it gets better”.

Adam Smith, the head of futures at GroupM, said: “2010 was a bit of a

bounce. Advertising is normally cyclical and during this stage of a recovery, things should be picking up pace. Yet this isn’t a really recovery.”

The slowdown in retail sales “has put a brake on advertising, at least short term. It has also put a brake on the economy as a whole,” GroupM said.

Mr Smith pointed to pressure on newspaper advertising as well as a reduction in the amount of government spending on advertising, as strong reasons why the market has struggled in 2011.

“The UK performance is matched by countries like Italy, Spain. The pattern is not great for Western Europe,” Mr Smith said. “Next year we’re hoping it will be better.”

GroupM, which is owned by the advertising giant WPP, pointed to several possible causes for optimism in the UK market, with the chance of a better performance if the bank rate stays low, if retail – the second biggest spenders after the finance industry – bounces back, and if government ad spending returns.