UK retail media spending drives digital ad growth to £45 billion by 2026

UK digital advertising expenditure is set to reach £45 billion by 2026, according to the IAB UK HY 2025 Digital Adspend Report released on September 22, 2025. The forecast shows consistent 10% year-on-year growth in both 2025 and 2026, driven primarily by retail media and TV+ format expansion.

Digital ad spending totaled £18.7 billion in the first half of 2025. Search maintained its dominance with £8.3 billion representing 44% of total investment. Video spending reached £4.3 billion accounting for 23% of the market, with TV+ comprising more than one-third of video expenditure.

Retail media establishes market position

Online retail media hit £1.5 billion in the first half of 2025, cementing its status as one of the sector's fastest-growing channels. According to IAB UK, retail media has "rapidly established itself as a core channel, reflecting how brands are investing closer to the point of purchase to drive measurable outcomes."

The growth aligns with European retail media expansion, where brands working with four to six retail media networks more than doubled from 10% to 24% in 2025. Retail media is projected to capture 20% of global ad revenue by 2030, with the sector positioned to exceed $300 billion in spending according to Omdia research.

Display advertising reached £2.9 billion while other formats contributed £3.2 billion. Gaming generated £620 million, Digital Out-of-Home delivered £490 million, Classifieds accounted for £450 million, and Digital Audio produced £160 million.

Mobile devices captured 71% of all spending at £13.3 billion, reinforcing their position as the primary platform for digital advertising.

TV+ gains importance in digital budgets

TV+ has emerged as a significant component of digital advertising strategies. With more than a third of video spend flowing into TV+, the format offers advertisers premium environments alongside digital flexibility, according to the IAB UK report.

Industry analysis shows Connected TV advertising continues experiencing rapid growth, with CTV's share of media budgets projected to double from 14% in 2023 to 28% in 2025. Recent studies reveal CTV campaigns achieve 78% higher attention than industry standards, demonstrating superior engagement metrics compared to traditional formats.

The shift toward streaming platforms reflects changing consumption patterns. Connected TV officially surpassed combined broadcast and cable television viewing for the first time in May 2025, reaching 44.8% of total TV consumption.

Programmatic reaches milestone adoption

Programmatic trading achieved a significant milestone, representing 78% of digital display spend. This demonstrates how automated buying has become central to industry operations, according to IAB UK findings.

The programmatic advancement reflects broader automation trends. Google's Display & Video 360 platform reports 60% cost reduction with AI-enhanced automation, while programmatic advertising investment plans show 72% of marketers increasing spending in 2025.

Recent developments include Criteo becoming the first onsite retail media partner for Google Search Ads 360, enabling advertisers to create campaigns across retail media inventory through unified interfaces.

Artificial intelligence transforms advertising operations

Artificial intelligence emerged as both an opportunity and challenge for the advertising industry. According to the IAB UK report, generative tools enable SMEs to create ad content quickly, while dynamic creative optimization boosts personalization in retail media and audio formats. Self-serve AI platforms improve targeting efficiency and privacy compliance.

However, 56% of industry leaders identified AI and automation as a top challenge, with concerns over transparency, homogenized creative output, and over-reliance on algorithms.

IAB Europe reveals widespread AI adoption with 85% of companies deploying AI-based tools for marketing purposes. Targeting and content generation lead adoption patterns, with 64% and 61% of respondents respectively using these functions.

The industry faces significant automation pressure. DoubleVerify research shows marketers spend 10 hours weekly on manual tasks, including bid modifications and budget allocations. Google introduces text guidelines for AI-powered advertising campaigns to enhance brand control across Performance Max and AI Max campaigns.

AI implementation varies across platforms. StackAdapt launched AI assistant Ivy for programmatic advertising, while Innovid launched comprehensive AI tools to automate creative labeling and real-time optimization.

Industry challenges persist

Measurement remains a significant concern, with 31% of respondents calling it a top challenge amid ongoing fragmentation and lack of standardization. Retail media measurement challenges persist despite industry growth, with 44% of respondents rating their retail media experiences as merely good.

Regulatory changes, including less healthy food restrictions and evolving privacy rules, alongside economic uncertainty, continue shaping planning cycles. This pushes advertisers to diversify spend and seek greater resilience.

The fragmentation issue extends across Europe. IAB Europe released updated retail media definitions to address standardization challenges, with 70% of buyers citing lack of retail media standards as investment barriers.

Executive perspectives on market maturity

Jon Mew, CEO of IAB UK, emphasized market evolution: "This report shows not just where the market is today, but where it's heading. With programmatic trading now the norm and digital spend set to hit £45bn by 2026, the UK ad industry is entering a new phase of maturity."

Jeff Youssef, partner at Oliver Wyman, highlighted resilience: "The UK digital advertising market has proven remarkably resilient in the face of economic uncertainty and regulatory headwinds. The challenge now lies in balancing innovation with trust, transparency and effective measurement."

The executives' comments reflect broader industry recognition of transformation requirements. McKinsey analysis identifies AI agents reshaping advertising landscape, with $1.1 billion in equity investment flowing into agentic AI in 2024.

Market implications for advertising professionals

The forecast carries significant implications for marketing strategists navigating budget allocation decisions. The retail media expansion creates new partnership opportunities between brands and commerce platforms, fundamentally altering traditional media buying strategies.

Connected TV growth requires sophisticated measurement approaches accounting for cross-device viewing patterns. Marketing models face challenges as Mixed Media Models fall short in measuring linear TV effectiveness, while streaming TV advertising is expected to surge 19.3% as linear TV faces 3.4% decline throughout 2025.

The rise of AI automation demands new skills in campaign management and optimization strategies. Industry experts argue agentic AI threatens traditional DSP business models through automated campaign management functions.

Economic pressures continue influencing sector dynamics. WPP revised global ad forecast to $1.08 trillion amid trade disruptions, with compound annual growth rate adjusted to 5.4% down from previously projected 6.4%.

Future outlook and strategic considerations

The path to £45 billion by 2026 depends on continued innovation balanced with transparency requirements. Retail media networks must address measurement standardization while expanding inventory access. TV+ formats require refined attribution methodologies supporting cross-platform campaign optimization.

AI development will likely accelerate, but successful implementation requires maintaining human oversight and creative control. The industry must navigate regulatory compliance while leveraging automation benefits.

For advertising professionals, success requires adapting to multi-platform strategies incorporating retail media, connected TV, and AI-driven optimization. Understanding first-party data applications and privacy-compliant targeting becomes essential as traditional tracking methods evolve.

The UK advertising landscape enters a maturation phase where technology advancement meets accountability demands. Organizations balancing innovation with measurement rigor will likely capture the greatest share of the projected £45 billion market by 2026.

Timeline

• September 22, 2025: IAB UK releases HY 2025 Digital Adspend Report forecasting £45 billion by 2026
• September 24, 2025: IAB UK publishes "AI in advertising: balancing innovation with trust" report
• September 18, 2025: IAB Europe reveals 85% AI adoption rate across European advertising companies
• September 10, 2025: Criteo becomes first onsite retail media partner for Google Search Ads 360
• September 5, 2025: Retail media projected to capture 20% of global ad revenue by 2030
• August 26, 2025: Innovid launches AI tools to automate creative labeling and real-time optimization
• August 19, 2025: Kargo CTV campaigns achieve 78% higher attention than industry standards
• August 13, 2025: DoubleVerify study reveals marketers spend 10 hours weekly on manual tasks
• July 30, 2025: European retail media partnerships deepen as standardization gaps persist
• July 27, 2025: McKinsey analysis shows AI agents reshape advertising landscape
• July 15, 2025: European retail media partnerships extend as measurement challenges persist
• July 9, 2025: StackAdapt launches AI assistant Ivy for programmatic advertising

Summary

Who: IAB UK, representing the UK digital advertising industry, alongside major retailers, advertising technology companies, and marketing agencies investing in retail media and AI-powered advertising solutions.

What: UK digital advertising spending forecast to reach £45 billion by 2026 with 10% annual growth, driven by retail media expansion to £1.5 billion and TV+ capturing over one-third of video advertising investment, while AI adoption transforms campaign automation despite industry concerns about transparency and standardization.

When: The IAB UK HY 2025 Digital Adspend Report was published on September 22, 2025, analyzing first-half 2025 performance totaling £18.7 billion and projecting growth through 2026, with corresponding AI adoption analysis released September 24, 2025.

Where: The forecast covers UK digital advertising markets across search (£8.3 billion), video (£4.3 billion), display (£2.9 billion), retail media (£1.5 billion), gaming, digital out-of-home, classifieds, and digital audio channels, with mobile platforms capturing 71% of total spending.

Why: The growth reflects UK digital advertising market maturity with programmatic trading reaching 78% of display spend, retail media providing measurable purchase-intent targeting, TV+ offering premium brand-safe environments, and AI automation addressing operational efficiency demands while creating transparency and measurement standardization challenges requiring industry attention.