UK firms reject Bank forecast on rate increase

FOUR out of five finance chiefs (CFOs) in the UK believe interest rates will rise well before the Bank forecasts, a new report reveals, throwing fresh doubt on the Bank of England’s new forward guidance policy.

According to Deloitte’s survey of CFOs, 82 per cent believe that interest rates will rise by 2015, despite the Bank’s suggestion that economic conditions will not be sufficient to up rates until the middle of 2016.

New Bank governor Mark Carney announced in August that rates would stay at their historic low at least until unemployment fell below seven per cent, which is not forecast to happen for nearly three years.

However, recent indications that the economy is improving at a more rapid pace have led many to believe an earlier increase is likely.

With firms expecting an improvement in conditions, CFOs also now have the highest appetite for new risk recorded since May 2007, before the financial crisis.

Chief economist Ian Stewart commented: “The defensive strategies of cost cutting and cash accumulation that saw corporates through the global financial crisis are increasingly out of favour. The priority now is expansion and the balance-sheet cycle has turned decisively towards growth.”

The survey shows that 54 per cent of CFOs say now is a good time to take on risk, rising from 45 per cent in the second quarter, and reaching the highest level for over six years.

Firms are also far less uncertain than they have been in recent years.

While 62 per cent still say they face “a high level of financial and economic uncertainty”, the figure has declined significantly from a peak of 97 per cent at the end of 2011.

At the end of last year, 49 per cent of CFOs said that reducing costs was a strong priority for their business. The share has now fallen to a 29 per cent.

A recent increase in stability in the Eurozone also appears to have had a positive knock-on effect for UK companies. Only eight per cent believe a country will have the leave the euro, in comparison to 37 per cent just under two years ago.