U.K. Inc. `Paralyzed' by Brexit Worry, Advertising Lobby Says

(Bloomberg) -- U.K. companies, fretting over their future relationship with the European Union, are clamping down on marketing budgets, pushing one gauge of the health of the advertising industry to its lowest reading since the start of 2016.

About 70 percent of U.K. marketers held advertising spending steady over the third quarter, the Institute of Practitioners in Advertising said in its quarterly Bellwether Report Wednesday. The ratio of companies increasing marketing budgets exceeded those cutting back by 9.9 percentage points, the smallest gap since the first quarter of 2016.

Uncertainty over the impact of Brexit negotiations was the primary source of paralysis, the IPA said in the report, which surveys marketing expenditure and financial prospects.

The chill effect on advertising comes as businesses seek clarity on the U.K.’s break from the EU, with deadlock over the divorce bill, the rights of European citizens living in Britain and the question of the Irish border holding up talks on transitional arrangements and trade. Lower sales and a desire to keep costs down also contributed to advertisers freezing budgets, said Paul Smith, director at research firm IHS Market and author of the IPA report.

“Financial prospects remain broadly subdued as concerns about Brexit continue to weigh on sentiment,” Smith said. “Combined with ongoing squeezes on spending from rising costs, these headwinds are likely to continue to undermine growth in the final quarter of 2017.”

The Bellwether Report features original data drawn from a panel of about 300 U.K. marketing professionals and has been published since 2000. Although 21 percent of the survey panel have spent more on marketing, 11 percent have cut spending. The difference, or balance, was “notably” smaller than the second quarter’s 13.1-point gap.

Reflective of a longer-term shift, the report shows that internet marketing budgets were increased at the expense of traditional print media. The latest data showed that a balance of 17 percent of companies increased their internet budgets, the IPA said. That’s lower than the previous quarter’s decade-high of 23 percent “but nonetheless indicative of healthy expansion.”

Marketers cited the fuzzy impacts of the Brexit negotiations and the U.K.’s future departure from the EU as the primary sources of uncertainty. This was coupled with reports of reduced sales and investment and a desire to keep costs lean.

To contact the reporter on this story: Joe Mayes in London at jmayes9@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Kim Robert McLaughlin