Market grows 60 times faster than GDP to hit £36.6bn

The UK’s ad market recorded a 6.1% increase in spend to £36.6bn in 2023 – compared to the GDP growth rate of 0.1% – recording the thirteenth annual expansion in the past 14 years driven by online formats, although the humble direct mailshot is still more than holding its own.

So says the latest Advertising Association/WARC Expenditure Report, which also forecasts spend will rise by 5.8% to reach £38.8bn this year, although this does represent a minor (-0.1pp) downgrade from January’s forecast, owing to prolonged inflationary pressures on the market. Further growth – of 4.5% – is expected in 2025, by when the UK’s ad market will be worth more than £40bn.

When compared to Europe’s largest advertising markets, the UK’s industry was seen to have outpaced Germany (-0.7%), France (+2.1%) and Ireland (+3.0%) last year, and is expected to repeat this in 2024. The UK’s ad market is on course to end the year some £16bn larger than those of its closest neighbours.

However, while UK adspend grew by 6.1% last year, this equated to a 1.2% contraction in real terms after accounting for high inflation, a rate which slightly lagged the flat (+0.1%) activity witnessed across the UK’s economy last year.

As estimated in January, digital formats combined grew by 11% to reach a total of £28.7bn in 2023, equivalent to 78.4% of all UK ad spend last year. Beyond this, out of home (+9.7%) was the only other medium to record growth in 2023.

The only major product sectors to record rising display ad spend (ie excluding search and classified formats) last year were retail (+5.0%) and services (+4.7%), the latter almost entirely attributable to a 6.6% rise in the entertainment and leisure sector.

Meanwhile direct mail spend remains around the £1bn-mark at £956,700 despite a 12.6% fall, and appears to still be firmly on media schedules.

The data also reveals actual investment for last year’s Q4 Christmas ad season, which topped £9.7bn after achieving growth of 7.4% year-on-year. This growth was led by digital out-of-home (+18.1%) and broadcaster video on demand (BVOD) (+15.9%) as well as search (+12.9%), as the traditional uplift in so-called “Golden Quarter” investment was buoyed further by increased advertising activity during the Rugby World Cup.

The latest AA/WARC dataset expects the UK advertising market to grow 5.8% to reach nearly £39bn in 2024. Broadcast media, most notably TV (+2.6%) and radio (+2.3%) are expected to return to growth, while the same is true for cinema (+2.5%). Among digital formats, search (+8.9%) and online display (+6.4%) are again set to see the strongest rises, closing the year with a combined share of 77% of all spend.

More favourable economic conditions should encourage advertisers to invest more in brand-building campaigns in 2024 and this, coupled with short-term stimuli such as the men’s UEFA European Football Championships in June, the upcoming General Election in the second half of the year and, to a lesser extent, the Paris Olympics in July, are expected to contribute to healthy growth in formats such as broadcaster video-on-demand (+14.1%) this year.

The picture is set to improve further for more channels in 2025 as a rise of 4.5% is forecast for the market as a whole. This includes an 11% rise for BVOD, 6.4% for search and 5.5% for online display, as economic headwinds are anticipated to ease.

Meanwhile, the long-term future of direct mail seems assured, with spend forecast to fall just 3.3% as advertisers finetune their targeting.

Advertising Association chief executive Stephen Woodford said: “The continued shift to online advertising formats reflects the changing shape of our economy, with people increasingly shopping online as well as on the high street, and businesses striving to provide the best customer experience in all scenarios.

“The UK advertising industry is much respected around the world, which is why we continue to see the exports of UK advertising services grow, an important source of additional revenue for many advertising businesses in a domestic economy that has little-to-no growth.”

WARC director of data, intelligence and forecasting James McDonald added: “Our latest survey of media owners confirms 2023 as a challenging year for most, with few properties recording gains and spend instead further consolidating within search and online display formats – particularly social media. Combined, these digital staples are on course to account for almost four in five pounds spent on advertising in the UK next year, up from a share of 51% just five years ago.

“Our forecasts assume that the UK’s economy will begin to break from the pattern of stagnation that has come to define recent quarters. Easing inflation over the coming 18 months should encourage more favourable trading conditions within the advertising sector, facilitating growth across a broader range of channels in turn.”