UK ad spend hit a record high in the first quarter of this year but growth is expected to slow this year and then go into reverse next year once inflation is taken into account.
UK ad spend saw a year-on-year rise of 28.3% in the first three months of 2022, reaching a total of £8.6bn according to the latest quarterly figures from Advertising Association and marketing agency WARC.
All media recovered compared to the first three months of 2021, when the country was still in a national lockdown, and forecasts for the quarter were exceeded.
The strong Q1 has led to the 2022 forecast being increased to 10.9% growth and a forecasted total of £35.4bn. However, when accounting for increasing inflation across sectors, growth is forecasted at 1.8% this year compared to pre-Covid average growth of 2.6%.
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James McDonald, director of data, intelligence and forecasting at WARC, said this means “the market is now set to contract in 2023 after accounting for these ongoing inflationary pressures”.
Ad spend is expected to continue growing by 4.4% in 2023 bringing the total forecasted value to £37bn. AA/WARC downgraded its previous forecast from April, when it thought 2023 ad spend would grow by 5.4%. Adjusted for inflation, this equates to a 0.9% contraction.
Online advertising has seen continued growth and is forecasted to account for 74.3% of all ad spend this year, up from 73.5% in 2021.
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In Q1 the year-on-year growth of publishing and news media segments slowed compared to the final quarter of 2021. For example, national newsbrands saw annual growth of 15.9% in Q1 compared to 16.6% in Q4 2021, while online-only growth fell from 20.4% to 18.8%.
At regional newsbrands, growth grew from 11.6% to 22.2% in Q1 although they saw a big boost in print in particular as online-only growth fell from 36.6% to 25.8%.
Search, which is dominated by Google, grew by 29.9% compared to 32.4% in Q4. Online classified revenue, which includes digital revenues for newsbrands, magazine brands, broadcaster VOD and radio station websites, also grew by 29.9% in Q1.
The fastest growing sector was out of home advertising (such as billboards and advertising in public transport), which grew by 146.2% year-on-year in comparison to the start of 2021 when a strict lockdown was in place.
Stephen Woodford, chief executive of Advertising Association, said: “It is encouraging to see growth in our industry over Q1, as the economy continues its recovery year-on-year following last year's Covid-19 lockdown.”
McDonald added: “The UK’s ad market is currently experiencing a soft landing from the turmoil caused by the Covid outbreak, with early budget commitments translating into a strong start to the year for the industry – all media recorded growth in the first quarter.
“As predicted, however, inflation is now starting to bite; its impact on the consumer is well documented, but the rising cost of servicing government debt leaves the incoming prime minister with less fiscal flex for stimulating flatlining economic activity. For advertisers, higher costs will carve into margins."
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