Finance heads cut spend as growth stalls

THE MAJORITY of finance chiefs in UK companies plan to cut investment and hiring over the next year as they batten down the hatches and prepare for another recession, a new report today shows.

More than 40 per cent of CFOs believe the UK economy will start to contract again soon, and are choosing defensive strategies such as cash hoarding and stricter cost control to manage the expected downturn.

Confidence in the outlook has also fallen sharply to the lowest level seen since mid-2008, Deloitte’s CFO survey found, even though most heads of finance had believed they would hire and invest more in 2011 at the start of this year.

“Finance chiefs have become more bearish on the outlook for profits,” said Deloitte chief economist Ian Stewart. “Most see profit margins contracting over the next year, a marked change from the optimism we saw in profits a year ago.”

Sentiment has been hammered by the Eurozone political stalemate on how to handle the growing probability that highly-indebted governments will not be able to repay vast holdings of sovereign bonds sold to the region’s biggest banks.

Similar concerns over the US economy, and evidence of slowdown in Asian markets such as China, have stoked fears of another global recession in the next year.

“For the first time in a year cost control is the top priority for CFOs and capital expenditure and acquisitions have taken a back seat,” the report said.

Nearly half of the executives questioned said macroeconomic uncertainty was high or very high, up from just 23 per cent in the previous survey just three months ago.

“Such worries have hit hiring plans and bearing in mind the government is relying on big companies like these to lead the recovery, this will not be welcome news,” Stewart told City A.M.

Only companies with a bigger presence globally than in the UK still saw growth as their top priority. Firms that made 70 per cent or more of their revenues outside the UK were looking for growth, while those with 70 per cent or more of their revenues from the UK were defensive.