U.K. Marketers Continue to Cut Ad Spending

Second Straight Quarter of Declining Media Outlays; Advertisers 'Not Panicked'

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LONDON (AdAge.com) -- British marketers are cutting their budgets for the second consecutive quarter, resulting in a flat ad-spending outlook that reflects a steadily declining confidence in the state of the U.K. economy.
Robert Lerwill, CEO of Aegis Group, said, 'Our industry must remain alert to fluctuations in economic growth forecasts and keep a very watchful eye on our clients' spending.'
Robert Lerwill, CEO of Aegis Group, said, 'Our industry must remain alert to fluctuations in economic growth forecasts and keep a very watchful eye on our clients' spending.'

According to the latest quarterly Bellwether Report forecast released today by the Institute of Practitioners in Advertising, growth in media budgets for 2008 will be a meager 0.8%. Weak sales, subdued consumer spending and ongoing concerns about the health of the U.K. economy are driving marketers to cut costs.

The continued budget trimming represents a marked contrast to mid-2007, when growth reached a three-year high as marketers surveyed said they planned to increase their media budgets by 8% in 2007.

To compile the Bellwether Report, a panel of 300 marketing executives from the U.K.'s top 1,000 advertisers complete e-mail questionnaires about their media-spending plans.

'Reluctance to commit'
Bob Wootton, the director-media and advertising for the Incorporated Society of British Advertisers, the U.K.'s advertiser association, said, "There is definitely a slowing down and a reluctance to commit budgets too far in advance in order to maintain flexibility. The mood among our members is cool but not panicked."

Direct marketing and sales promotion are the hardest-hit areas, with the weakest growth in eight years. Chris Williamson, author of the Bellwether Report and chief economist at NTC Economics, said those sectors' decline "reflects the need to withdraw discounts and offers as companies battle with rising costs."

The budget downturn wasn't across the board -- 19% of companies reported an upward revision to budgets while 21% reported a downward revision. Budget cuts were most commonly seen in the package goods, public, industrial/utilities and media sectors.

Anthony Wreford, president-CEO Europe of Omnicom Group's D.A.S., said the credit-crunch-related issues facing financial services companies -- a big sector for direct marketing -- probably account for most of that medium's decline.

"Historically, sales promotion and direct marketing have done better in difficult times because of their potential for short-term sales returns. The levels of pessimism [about the economy] reported in the media will inevitably have damaged confidence," he said.

Internet now a 'main media'
What the study characterized as "main media" budgets remained unchanged in the first quarter, but this reflects the addition to this category of internet advertising, which continued to see a jump. Of survey respondents, 27% reported that their current internet budgets were revised up while just 5% reported a decline.

The report suggests that budgets for advertising in traditional media such as TV and print were revised down on average in the first quarter. Within the internet category, spending on search rose at a slightly faster rate than total internet advertising.

Robert Lerwill, CEO of Aegis Group, remains bullish about prospects for 2008. "Let's not lose sight of the fact that marketing spend is still set to increase in 2008," he said. "But we should not be complacent. Our industry must remain alert to fluctuations in economic growth forecasts and keep a very watchful eye on our clients' spending."

"The latest Bellwether highlights the dilemma that faces the Bank of England, pointing to a combination of slowing growth but rising inflationary pressures," Mr. Williamson said. "Pressure on profit margins led to a further trimming of marketing budgets in Q1, with planned expenditure for 2008 now set to grow less than had been indicated by the survey at the end of last year."
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