General Election casts a long shadow over UK corporates

• CFOs see post-election policy change and uncertainty as the greatest threat to UK business; EU referendum rated as second greatest risk
• Political uncertainty hits corporate expansion
• CFO perceptions of economic uncertainty rise; risk appetite and investment plans dip
• CFOs fear post-election changes to tax, financial regulation and labour market policy are likely to be negative for business

Post-election uncertainty, policy change and a referendum on EU membership rank as the biggest threats to UK business according to the latest Deloitte CFO Survey.

The Deloitte CFO Survey for Q1 2015 gauges the views of 108 CFOs of FTSE 350 and other large private UK companies.

CFOs are more concerned about the General Election and the risk of an EU referendum than deflation and weakness in the Euro area, emerging market weakness and the prospect of tighter monetary policy in the UK and US.

Against a backdrop of elevated levels of political uncertainty, CFOs have become less willing to take risk. 51% of CFOs say that now is a good time to take risk onto their balance sheets, down from a high of 72% just two quarters previously.

Uncertainty has risen with 63% of CFOs saying the level of uncertainty facing their business is above normal, high or very high. This is the highest level in almost two years.

CFOs’ expectations for capital expenditure, while still positive, have dipped with a net 53% of CFOs saying UK corporates will increase spending in the next 12 months, down from a high of 80% in Q1 2014.

CFOs were also asked about the effect on their business of likely changes in key policy areas. A net 66% say that changes to general levels of regulation are likely to be negative and 50% say that changes to tax policy are likely to be negative.  CFOs also say that changes to financial regulation (40%), fiscal policy (31%), monetary policy (25%), the labour market (20%) and energy policy (15%) are likely to be negative.

However, CFOs are upbeat about changes to education and training and infrastructure policies with a net 15% and 28%, respectively, saying change here would have a positive effect on their businesses.

Deloitte’s Q1 2015 survey also finds that 36% of CFOs expect UK inflation to lie between 0% and 1.5% in two years’ time, up from 21% in Q4 2014. Over the last quarter, the proportion of CFOs expecting inflation to run at between 1.6% and 2.5% has dropped from 71% to 58%.

Financing conditions remain overwhelmingly positive for large corporates with a net 73% of CFOs saying they have good access to credit and a net 90% saying credit is cheap.

Ian Stewart, chief economist at Deloitte, said:

“The UK economic outlook has improved since the start of the year but for CFOs this seems to have been offset by mounting political risk. Rising perceptions of uncertainty have dampened corporate risk appetite and fed through to a softening of investment intentions. Risk appetite appears to have decoupled from its usual drivers, the economic outlook and equity market performance. This provides an ominous reminder that the business recovery is not assured.

“A clear majority of CFOs see the potential for adverse changes on regulation and taxation and, on balance, the expectation is that post-election changes will be negative for fiscal, monetary and labour market policies.”

David Sproul, senior partner and chief executive of Deloitte, said:

“CFOs think the General Election poses a risk to what is seen as a generally benign policy environment. Meanwhile, the possible referendum on EU membership ranks almost as highly as the General Election as a threat to business.

“There is food for thought for all parties in our latest survey. Whoever is in government after 7 May cannot take the business-led recovery for granted. There is a pressing need to provide business with certainty and stability in the coming years.

“Our clear sense from this survey is that CFOs fear change in key policy areas - including tax, financial regulation and fiscal policy - and a want to see a focus on stability and the long-term.

“The UK’s recovery has been led by corporate hiring and investment. This Survey provides a reminder that business-hostile policy change remains a potent threat to that recovery.”

End

Notes to editors

About the Deloitte CFO Survey
This is the 31st quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK.

The 2015 first quarter survey took place between 6th and 23rd March.

108 CFOs participated, including the CFOs of 21 FTSE 100 and 45 FTSE 250 companies. The rest were CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 72 UK-listed companies surveyed is £380 billion, or approximately 16% of the UK quoted equity market.

The Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing.

For copies of previous CFO Surveys, please visit www.deloitte.co.uk/cfosurvey.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.