CFOs are more confident – but the UK’s low productivity is a growing concern
Finance chiefs at Britain’s largest firms have shown increased confidence in the economy as their concern shifts away from inflation and high interest rates to geopolitical risks and the UK’s low productivity.
General sentiment among chief financial officers has risen for the second straight quarter, according Deloitte’s fourth-quarter CFO survey.
The research also signalled that corporate risk appetite has risen to an 18-month high.
A net 11 per cent of CFOs were more optimistic about their businesses’ financial prospects than they were three months ago, with sentiment well above the survey’s 16-year average of minus one per cent.
Deloitte polled 72 CFOs at some of the biggest companies, including 12 from FTSE 100 firms.
Concerns around inflation have dominated the survey over the last two years, but it has now dropped down to fifth place on a 13-point list of external risks tracked by Deloitte. The issue’s weighted average rating fell to 53 from 58 in the previous quarter.
Inflation fell much further than expected to 3.9 per cent in November, helped by falling petrol prices.
CFOs expected the central bank to lower rates to 4.75 per cent to 5.25 per cent in the next year as price and wage pressures fall.
Nevertheless, there is a strong feeling that the UK has entered a prolonged period of high labour costs, with 92 per cent of CFOs expecting costs to remain elevated.
CFOs once again identified rising geopolitical risks as the biggest external threat over the next year as international conflict continues to rage in Ukraine and the Middle East. The issue’s rating increased to 63 from 59, with nearly half (44 per cent) of CFOs expecting more long-term diversification and near-shoring of their supply chains.
The competitiveness of the UK economy also stoked more anxiety, moving up to second place with a rating of 56 from 53.
The survey showed that CFOs’ balance sheet stances remain largely defensive, with expansionary strategies falling out of favour.
Cost reduction is CFOs’ top goal, with more than half (51 per cent) citing it as a strong priority over the next year, followed by boosting cash flow (47 per cent).
Deloitte noted a sharp fall in the importance given to new products and services or entering new markets as just 15 per cent of CFOs said it was a strong priority.
However, CFOs are bullish on new technology, with 63 per cent expecting investment in new technology to increase in the long term.
“Whilst finance chiefs are starting 2024 in positive spirits, this is tempered by high levels of uncertainty, concerns around geopolitics, and low UK productivity,” said Ian Stewart, chief economist at Deloitte.
“CFOs foresee growth ahead but – based on their defensive balance sheet stance – not imminently.”