UK corporate spirits revive | Deloitte UK has been saved
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The last Deloitte survey of UK Chief Financial Officers shows a further easing of the Brexit shock that hit corporate spirits last summer. The full report is available at:
CFO perceptions of external macro-economic and financial uncertainty have almost halved since last year’s EU referendum. Business optimism, which dropped to the lowest level in nine years last July, has risen to an 18-month high.
The latest survey shows a decline in perceptions of external risk in six of the eight key areas we poll CFOs on. Brexit continues to top the corporate risk list, though with a lower reading than in the last two quarters. Britain’s future relationship with the EU is not the sole factor affecting corporate sentiment. The level of concern about two longstanding worries, weakness in emerging markets and in the euro area, has diminished markedly in importance.
Corporate risk appetite has edged higher and CFOs have moved away from the defensive strategies of the last year towards pro-growth policies. A laser-like focus on cost control and building cash flow has softened and CFOs are placing more weight on capital spending. This finding cross checks with recent Bank of England and CBI surveys showing a pickup in investment intentions.
CFOs also expect Brexit to inflict less damage to their own spending plans than expected last year. The proportion of CFOs who expect Brexit to lead them to reduce hiring in the next three years has more than halved, from 66% to 30%, since the vote. Those expecting it to hit investment has fallen from 58% to 26% and M&A from 40% to 11%. Most CFOs think Brexit will have an adverse effect on the business environment in the long run although, here too, the degree of negativity has fallen in the last year.
The UK’s exit from the EU is a long and uncertain game. The CFO Survey has demonstrated time and again that business sentiment is changeable. Though they may have eased, this survey shows that the headwinds from Brexit have not disappeared. Nonetheless, the UK corporate sector enters the negotiation phase of the UK’s withdrawal from the EU in better spirits than seemed likely in the months after last year’s referendum vote.
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.