Greater optimism yet to ignite risk appetite | Deloitte UK has been saved
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The latest Deloitte survey of UK Chief Financial Officers highlights the opportunities and risks facing British business in 2017. To read the report in full visit:
CFOs have become markedly more positive on the outlook for their businesses. Optimism among the UK’s largest businesses rebounded to the highest level in 18 months in the fourth quarter.
Rising optimism seems to reflect the unexpected resilience of the UK economy in the wake of the referendum vote and an easing of earlier concerns about the Chinese and US economies.
Yet this does not represent a return to business as usual. Despite increased confidence CFOs enter 2017 with low levels of risk appetite and a focus on defensive balance sheet strategies.
Perceptions of uncertainty remain elevated, with 89% of CFOs saying they face high levels of economic and financial uncertainty. CFOs continue to believe that Brexit poses the greatest risk to their business; in second place in the worry list is weak UK demand, followed by tighter monetary conditions in the UK and US and weakness in the euro area.
Uncertainty is weighing on corporates willingness to invest and spend. CFO risk appetite is muted and well below average, with 80% of CFOs saying now is not a good time to take risks onto their balance sheets. While the outlook for hiring and capital expenditure improved in the fourth quarter, on balance CFOs see corporate spending decreasing in 2017.
Overall, CFOs remain focused on defensive balance sheet measures with cost reduction and raising cash flow the top two balance sheet priorities.
CFOs continue to expect that their own spending and investment will be weaker as a result of exiting and EU – though less weak than they anticipated in the immediate aftermath of the referendum vote. In the long term CFOs expect that leaving the EU will be damage the business environment. 66% of CFOs see Brexit as being negative for the business environment in the long term and 14% see it as a positive.
CFO confidence has surged since the post referendum lows. But this survey paints a picture of a continued backwash from the referendum, with uncertainty keeping a lid on expansion and corporates focused on costs.
Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.