UK finance chiefs fear double dip recession

Julian Harris
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THE UK is likely to suffer from a double dip recession, according to a gloomy survey of chief financial officers released today.

The chances of another economic contraction have soared to 54 per cent, according to the latest Deloitte survey of CFOs.

Back in October the chance of a double dip was estimated at just 43 per cent, while in July there was only thought to be a one in three chance of recession.

The bearish findings echoed predictions from the Centre for Economics and Business Research (CEBR), which yesterday said the UK would succumb to another slump. “This could well be happening right now,” said Douglas McWilliams, the centre’s chief executive.

The CEBR said that a break-up of the euro at some point over the next decade is now a near-certainty, with a 60 per cent chance of one or more countries leaving the Eurozone in 2012.

Financial officers in the Deloitte survey were more cautious, rating the chance of an exit from the single currency this year at 37 per cent.

Nonetheless, the risk of a Eurozone break up remains the “biggest concern” for CFOs, the survey found.

And the proportion of CFOs rating the level of economic and financial uncertainty as “high” or “very high” has doubled in the last six months, to over half (56 per cent) of respondents.

The negative outlook is forcing companies to scale back plans to invest, according to Deloitte economist Ian Stewart.

“The financial strategies of UK corporates have reversed in the last year,” Stewart said. “CFOs entered 2011 with a focus on expanding into new markets and increasing capital spending – yet they enter 2012 with a focus on cutting costs and increasing cash flow.”

Nearly nine in 10 CFOs (87 per cent) consider this to be a bad time to take further risks on their balance sheets.

“Those pinning their hopes for growth on a sharp increase in corporate spending in the UK this year may be disappointed,” Stewart added.

“On balance, CFOs expect corporate hiring, investment and discretionary spending to contract in 2012.”

Economic confidence has plummeted to a three-year low, according to a separate study conducted by Lloyds Bank. Over half of surveyed companies said they are now more pessimistic about prospects, the Lloyds survey showed.

The survey, released today, appears to show a 75 per cent chance of recession, Lloyds said.

“Our survey seems to indicate that companies in the UK are bracing themselves for a period of stagnant or even negative growth,” commented Lloyds’ chief economist Trevor Williams.

Meanwhile, chancellor George Osborne (left) is set to miss his deficit target for this year, according to economist Howard Archer of IHS Global Insight.

With the government’s finances worsened by weak or negative growth, Archer fears public sector net borrowing could exceed £130bn in 2012-13, some £10bn higher than official forecasts.