A month into 2014 and the hope in many quarters was that some clarity over the state of the economy would begin to emerge. However, turmoil in emerging markets (BRIC and MINT) and the US tapering its quantitative easing policy has meant global events are combining with existing UK based structural disposable income to raise concerns. Despite this, the rest of the economy indicators are positive, such as the confirmation that the UK grew by an estimated 2.6% in 2013.
This was alluded to in the recent Bank of England (BoE) recent inflation update. It disposed of its original forward guidance ‘deal breaker’ when it became clear that employment was going to hit the 7% yearly target quicker than expected. BoE have since refocused on the gap between output and employment (a tricky measure). This underlined with a promise that unless something drastic happens with the economy, interest rates will remain at the current levels for a year and that pre-recession levels won’t be met for a number of years. Therefore the message is that whilst the numbers are looking good, the economy is still not strong enough to stand on its own two feet.
It is notable that the service sector has seen a recent negative drop with a similar new business drop. This may well be a seasonal quirk linked to December, however as recent analysis by the IPA into marketing budgets suggests a level of confidence in business performance in the short term, represented by upward budget revisions.
The ASDA income tracker shows 3 months of stable annual growth and this, in conjunction with GFK data on household financial situation, demonstrates not only the best historic situation since 2008 but also the highest level of positive sentiment towards the future for a couple of years.
Investment, whether in the future (savings) or the present (major purchases), is moving in the right direction with positive upturns for both. A point to note is that wage inflation is still lower than price inflation, however it seems as though the recent drop in price inflation is being felt in people’s pockets.
It really does look as though there is optimism in the air at last and whilst there is still a long way to go to create a sustainable economy the worst may be over. The opportunity for brands is still there to reinforce their value in consumers minds. The IPA has much research to show that spending through a downturn ‘pump primes’ your brand value. At the cusp of true recovery, the opportunity to take advantage in a depressed market is diminishing, and the evidence is that many marketers are looking to increase budgets in the near future. Marketing teams should be flexing their budgets in accordance with these changes but more importantly should be building the case for defensive budgets for the next couple of years.James Hankins is Head of Integrated Planning at Vizeum UK