Advertising spend falls again but report gives grounds for optimism

Industry-wide survey anticipates increased spending during 2010
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Marketing budgets at UK companies were cut for the ninth quarter running at the end of 2009, according to a new survey, yet there was positive news for the industry as the rate of decline slowed to a two-year low.

The latest Bellwether Report, released by the Institute of Practitioners in Advertising (IPA) and accountancy group BDO, also found that companies were at their most optimistic for five years.

The report said 25 per cent of companies reported a fall in total spending, while 18 per cent reported an increase. The balance of -7 is a marked improvement from the -15 the previous quarter and was "the highest since the first quarter of 2008, and well above the record lows seen in late 2008 and early 2009".

Rory Sutherland, president of the IPA and vice chairman of Ogilvy Group's UK business, said these findings were "welcome," adding they showed that some of the previous report's optimism "was not a false dawn".

The survey found sentiment was also improving as companies were the most upbeat about the financial outlook for their industries "since the question was first asked in the second quarter of 2005". Of those polled, 35 per cent were more optimistic, compared with 22 per cent that were less upbeat.

Andy Viner, head of media at BDO, added: "Confidence is returning, with companies being upbeat about their own sectors and their corporate performance. Marketing budgets in 2010 are now set to grow, with companies re-thinking their budget allocation. For example, the spend in areas such as online advertising are due to increase significantly."

Budgets for advertising spending in 2010 have been set higher than the average last year. This was driven by companies increasing their budgets for internet advertising, which were revised up for the second consecutive quarter. The balance of companies upping their internet-search advertising budgets was up 11.5 per cent, with other internet advertising up 10.4 per cent. Direct-marketing budgets were also up for the first time since the second quarter of 2007.

This will prove a boon to media companies which have struggled to cope with the slump in advertising brought on by the downturn, and could signal better news for the wider economy. The companies compiling the report said the results "suggest that the UK exited recession in the fourth quarter".

Chris Williamson, chief economist at Markit and author of the report, said: "With budgets being set higher for next year as confidence among marketing executives about financial prospects continued to improve, the Bellwether adds further confirmation that the UK economy has pulled out of recession."

He added: "Companies clearly remain cautious about increasing spending in an uncertain economic environment, however, as the setting of marketing budgets remains far less buoyant than prior to the financial crisis."