UK finance chiefs: The worst is over

Tim Wallace
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THE UK’S top finance chiefs no longer expect the country to face a double-dip recession, and are instead advising their firms to expand into an increasingly optimistic landscape, a new survey revealed today.

Just 30 per cent of chief financial officers surveyed in Deloitte’s landmark poll now expect a renewed recession, down from 54 per cent at the end of the last quarter of 2011.

The percentage forecasting a Eurozone breakup is down from 37 per cent to 26 per cent.

As macroeconomic concerns have declined, the 136 chief finance officers surveyed – including 39 of the FTSE 100 and 53 FTSE 250 companies – have seen credit lines become increasingly available and risk appetites returning to replace the cautious outlook of recent months.

That improved confidence has stemmed the declines in both investment and hiring seen over the second half of 2011, although most firms are still reluctant to increase spending as they recognise growth will remain weak – 53 per cent expect the current slow period to last for more than a year.

“Stronger financial conditions, reflected in rising global equity markets, are seen to be benefiting larger UK companies, with chief finance officers reporting an increase in credit availability,” said Deloitte chief economist Ian Stewart.

“This more than unwinds the deterioration in credit availability seen in December which, at the time, some feared could be the start of a second credit crunch.”

In early 2011 the economic recovery looked stable, with companies taken by surprise when the Eurozone crisis deepened rapidly in the Autumn, slashing economic growth forecasts and ruining investment plans.

“That episode underscored how macroeconomic risks can escalate,” said Stewart.

“Having been wrong footed by a weakening of the economy in 2011, businesses may need more evidence the recovery is on track before committing to more expansionary policies.”

That experience has fed through into the businesses’ actions, and with 84 per cent of chief finance officers seeing the general level of uncertainty facing their business as “above normal,” they are often reluctant to change their defensive balance sheet strategies.

As a result, even though conditions have improved in recent months, firms now are more focused on reducing costs and improving cash flow than they were in the first quarter of 2011.

Similarly only 16 per cent are looking to expand by acquisition, down from 26 per cent a year ago, and 14 per cent are trying to reduce leverage, double the seven per cent in the first quarter of 2011.