Radio ad spend will increase by 2% this year, up from 0.9% during 2007, GroupM said in its This Year, Next Year advertising forecast report.
Adam Smith, futures director at GroupM, said declining audience figures meant that, in the short term, radio broadcasters could still demand a premium for spot ads. He said: "When an audience contracts and demand remains the same, the result is short-term inflation and distorted prices. It's an unhappy situation - it could put advertisers off the medium if they think it's getting too expensive and it makes it too easy for radio stations to make money."
In addition, advertisers tied into specific budget commitments cannot easily substitute radio for another medium, so ad spend will not drop in line with falling audience figures immediately.
In the long term, however, Smith noted that cheaper media will start to look more appealing. He said: "As a medium, radio is not strong enough to sustain prolonged - more than a year - price inflation."
He called on the radio industry to redouble its sponsorship and promotion efforts, which he said stalled in 2007 after a good run. He said: "Sponsorship and promotion is vital to revenue growth, but the industry is doing little about the problem. We notice a similar indifference to investigating why clients pull out of radio altogether."
Elsewhere, GroupM predicted a halving in UK cinema ad spend after bumper growth in 2007. Cinema enjoyed 6.8% ad spend growth last year, buoyed by some big film releases and a rainy summer.
Overall, GroupM predicts UK ad spend across all media will grow by 6% in 2008, up from 5.5% in 2007, despite the economic slowdown.
This article was first published on Media Week