Brexit Causes "Dismal" U.K. Media Outlook, Analyst Says

London Generic Shot Getty - H 2016
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Enders Analysis sees a worst-case scenario of a drop of nearly $1.33 billion in advertising over two years.

Britain’s decision to leave the European Union “offers no clear benefits to the audiovisual sector” and causes a “dismal” outlook for U.K. media, according to Enders Analysis.
“The present lack of a clear roadmap and climate of uncertainty promises to be harmful across the entire media sector at least in the short-term, raising the distinct prospect of a recession later this year or next,” the company’s analysts wrote in a report. “If the U.K. audiovisual sector is to emerge relatively unscathed, it is vital that it retains its ties with the single market by joining the European Economic Area. The alternative is unthinkable.”

The EEA provides for the free movement of people, goods, services and capital. Its members include most of the 28 EU countries, Norway and others.

Discussing the Brexit’s impact on advertising, the Enders analysts wrote: “Though by no means the only factor at work, the economy exerts a major influence in determining advertising spend. When the year started, underlying growth in broad measures, such as GDP and consumer spend, were growing at an annual rate of 2.0 percent and 2.6 percent, respectively.”

Reflecting this along with other market trends, such as the growth of digital display advertising, Enders has lowered its near-term forecast for year-over-year growth in display advertising in 2016 from its estimate of close to 5 percent.

“Our best-case scenario is a continuing slowdown in the second half of 2016, yet still moderately positive across the full year (3 percent if we include internet display, otherwise 2 percent decline for the traditional display media) and more or less flat in 2017,” said Enders. “But in our worst-case scenario, 2016 ends up with zero growth overall and minus 4 percent for the traditional display categories, which see an even greater year-on-year decline of minus 7 percent in 2017, amounting to a fall of nearly £1 billion ($1.33 billion) over the two years.”

The Enders report said: “The tremors running through the financial markets are provoking shocks that will be directly transmitted to the U.K. consumer, including higher inflation from the drop in value of sterling, lower wealth due to asset price volatility and decline. Other impacts may include a slowdown in the London housing market. Reflecting these developments, the expectation is for accelerated slowdown, and the city consensus is that we will enter recession (meaning two or more consecutive quarters of negative growth in GDP) either in late 2016 or in 2017."

Media planning firm ZenithOptimedia recently forecast that the Brexit would reduce U.K. advertising revenue growth by £70 million, or $93 million, each year.