Leaving the European Union could cost the UK £70m in
adspend growth each year – a total of £1bn by 2030 – according to new analysis
by Zenith. This damage would be caused by a reduction in economic growth in the
long term, not by advertisers’ short-term reaction to a vote to leave, which is
likely to be minimal.
The UK Treasury has assessed how the UK economy might
fare in the event of Brexit. It found that all post-Brexit scenarios for the
UK’s relationship with the EU signal reductions in the flow of trade and
investment, with the Treasury’s overall finding that by 2030 the UK’s GDP would
be 6.2% lower outside the EU than it would be inside it. Several other
institutions have published their own models; most are fairly similar and
almost all are negative. Assuming the Treasury’s forecast is borne out, Zenith
estimates that, at today's prices, Brexit would cost the UK ad industry £1bn in
advertising growth over 15 years.
Zenith has tracked a clear relationship between economic
growth and the health of the advertising industry. Increased growth leads to
more products from existing advertisers and more new products from start-ups,
all of which need to be marketed to consumers. Over the past 35 years, the UK
ad market has averaged 1.1% growth for every 1% increase in GDP, according to
Zenith’s long-running Advertising
Expenditure Forecasts report. Reduced economic growth resulting from Brexit
would lower the growth of the UK’s ad market in the long term.
However, the effects of deciding to leave the European
Union would not be felt for at least several months after the vote. Zenith has
conducted an exclusive survey among key UK and European advertisers, to gauge
the short-term effects of Brexit uncertainty and a vote to leave. We asked
respondents whether the prospect of Brexit had caused them to revise their
budgets so far this year, and whether they intended to revise their budgets in
the event of a vote to leave to EU. The results were unanimous: all of them
said they had not changed their budgets in the light of a possible Brexit, and
none of them planned to make any immediate changes in the event of a victory
for the Leave campaign, simply as a response to the vote.
This suggests Brexit would have little to no immediate
effect on the UK ad market. This is not necessarily a surprise: advertisers are
generally pragmatic when setting their budgets, and they allocate what they estimate
will be enough money to allow them to achieve their growth targets, given consumers’
spending habits and the options available for communicating with them. Brexit
would be an unprecedented situation, and is unlikely to instantly change the
way people shop or consume media, providing no signals for advertisers to vary
their spending plans. We expect that advertisers would begin revising their
advertising budgets, though, once the economic consequences of a vote to leave
start to become clear.
“While the immediate effect would be muted, Brexit would
have a long-term cost for the UK ad industry, holding back its growth by £70
million a year,” said Jonathan Barnard, Zenith’s Head of Forecasting. “It would
also threaten to make cross-border accounts in Europe more costly and cumbersome
to operate.”