The reports author Chris Williams, of NTC Research said: Marketing and advertising executives are entering 2004 in the most optimistic mood since the height of the dotcom boom.

Its encouraging that budget increases are being driven by the reality of rising profits instead of just improved business confidence.

The snapshot covered Q4 of last year and builds on improved third-quarter figures for 2003.

Over the year, the IPA reports that the sharpest rises in spend were recorded for direct marketing and sales promotion pieces.

In contrast, media ad spend remained static in real terms compared to 2002, although this is the largest slice of total advertising expenditure, representing 35% of the total spend on advertising.

PR and market research account for 28% of the total spend, direct marketing 23% and sales promotion 14% of total marketing expenditure.

More than half of the 250 firms studied in the report set new annual budgets in Q3 and Q4 last year. Of these, most reported that budgets had been set higher than actual spend in 2003.

Sir Martin Sorrell, chief executive of advertising agency WPP said: These UK trends are not surprising given that Q4 corporate earnings US look as though they will be up by 25%.

Story by Tony Brown