2023 ad market expected to decline 3% in ‘real terms’, according to AA/Warc

UK adspend will grow by 3.8% in 2023, according to the latest data from the Advertising Association and Warc, but in "real terms" – once inflation has been taken into account – expenditure faces a decline of 3%.

The latest quarterly Expenditure Report – which collects data direct from media owners – showed that UK adspend rose by 4.3% between July and September last year to a total £8.5bn, marking the ninth consecutive quarter of growth, which the authors attributed to an "ongoing, resilient recovery" from Covid.

This was driven by strong post-pandemic performance during Q3 from out of home (up 13.2% year on year) and cinema (up a massive 148.1%) as advertisers sought to reach consumers out and about. Meanwhile, search spend grew by 7.7%, its £3.33bn in quarterly spend accounting for nearly 40% of total media expenditure. Social media, included with online display (which itself was up a total 6.3%) was up 4.4%, while broadcast video-on-demand grew 4.3%.

The projection for 2023 is in line with October's forecast. Reduced growth is expected across almost all sectors of advertising, the AA and Warc said.

Nine months of growth

Confirmed figures for the nine months ending September 2022 showed that growth was up by 10.8%, reaching £25.3bn. The AA and Warc's research predicts that the whole of 2022 will record a total of £34.7bn in spend. With preliminary estimates putting growth at 8.8% last October, this marks a marginal downgrade of 0.4 percentage points.

However, after accounting for inflation, real growth is thought to be almost flat, at -0.1%.

That final three months of 2022 – the so-called "golden quarter", thanks to the festive period and the World Cup in Qatar – is expected to show solid growth of 4% to £9.5bn. While it fell short by half a percentage point (and £0.5bn) from October's forecast, AA/Warc said the figure "should nonetheless be considered as a good performance given economic challenges".

Stephen Woodford, chief executive of the Advertising Association said: "The UK advertising industry has held firm in its continued recovery from the Covid pandemic, with ad investment holding up in the face of significant headwinds. However, the economic pressures of 2022 including high inflation's impacts on the wider economy and on media costs means in real terms spend is likely to be flat. These pressures all contribute to slower growth projections for the year ahead.

"Advertising plays a vital role in helping brands communicate with their customers and navigate the cost-of-living pressures that everyone faces. As we publish our new three-year strategy which puts trusted, inclusive and sustainable advertising at the heart of our mission, we are determined to show the economic and social value of responsible advertising to the UK."

James McDonald, director of data, intelligence and forecasting at Warc, said:
"With the economy enjoying modest growth in November, and inflation appearing to have reached its peak, it is likely that the UK narrowly avoided slipping into the recession at the end of last year that many had feared – but a downturn now seems unavoidable in 2023. 



"Despite an air of resilience in recent market results, a looming recession will put pressure on ad trade this year. We foresee ad market growth easing to 3.8%, equating to a real-terms decline and the weakest rise in a decade if the pandemic-hit 2020 were excluded. The silver lining here is that our current modelling suggests that the slump will be short lived, with advertising investment set to lift by 5% over the first nine months of 2024."

Last week the IPA's latest Bellwether Report was published. It reported Q4 2022 budgets up for the seventh consecutive quarter and respondents mainly anticipating strong growth in the coming year.