Finance leaders believe that the labour shortages and supply disruptions British businesses are experiencing now are likely to persist for a year, with no meaningful easing until late 2022 or more likely early 2023.
The majority of CFOs experienced labour shortages over the past three months with three-quarters reporting some, severe or significant recruitment difficulties.
Almost the same proportion (73 per cent) expect similar levels of difficulties in one year’s time, according to Deloitte’s latest UK CFO Survey.
Meanwhile, over the last three months, almost six in ten CFOs (59 per cent) report that their businesses have experienced some, significant or severe supply chain disruption, with just over a quarter saying that this was significant or severe.
“With growth slowing over the third quarter, CFOs are navigating their businesses through a more uncertain environment. It is encouraging that, despite expectations of persistent labour and supply shortages, they remain focused on capex and growth,” explained Ian Stewart, chief economist at Deloitte.
“The post-financial-crisis period was characterised by corporate caution, with cost control and cash conservation being CFOs’ primary response to economic shocks,” he added.
“Today, amid excess demand, and with the pandemic, the energy transition and Brexit driving change, corporates are focusing on investment, particularly in new technology,” Stewart noted.
Conducted between 20 September and 4 October 2021, Deloitte’s latest quarterly CFO Survey captured sentiment amongst the UK’s largest businesses.
The slowdown in growth over the third quarter has affected CFOs’ expectations of demand.
Around four in ten CFOs (41 per cent) report that demand for their own businesses’ products and services have already returned to pre-pandemic levels. The remaining have pushed back their expectations for the recovery of demand, with 52 per cent now expecting demand to reach pre-pandemic levels in 2022 or later, up from 43 per cent in the second quarter.
Inflation and interest rates
CFO expectations for a rise in operating costs have reached a record high, with the majority of respondents expecting a margin squeeze over the next 12 months.
CFOs see inflation running higher for longer, with 54 per cent expecting it to exceed 2.5 per cent in two years’ time, a marked rise from 32 per cent in the second quarter.
CFOs have also revised their interest rate expectations, with the majority (52 per cent) expecting the Bank of England’s base rate to be 0.5 per cent or higher in a year’s time.
Despite this, finance leaders continue to focus on growth, with introducing new products or services and expanding into new markets remaining their top balance sheet priority.
CFOs are placing greater emphasis on increasing capital expenditure now than at any time in the 14-year history of the survey, with 29 per cent rating it as a strong priority.
CFOs rate labour shortages, the pandemic, climate change and higher inflation among the top risks facing their businesses.
They also see the climate transition as fundamentally reshaping the business environment. More than two-thirds expect significant or wholesale change in their own business model and operations over the next 10 years as a result of the move to net zero emissions.
“CFOs are tackling the double whammy of labour market shortages and supply chain disruption. But they remain confident with a strong appetite for growth and investment in new markets, products and services,” said Richard Houston, senior partner and CEO of Deloitte.
“Alongside the persisting impact of the pandemic, climate change remains firmly rooted as a key risk. As businesses set their sights on the transition to net zero, finance leaders are focusing on ways to ensure reducing carbon emissions is fully embedded into their corporate strategy.”
The latest survey saw 92 CFOs participate, including CFOs of 18 FTSE 100 and 32 FTSE 250 companies. The combined market value of the 60 UK-listed companies that participated is £471bn, approximately 18 per cent of the UK quoted equity market.