Finance bosses do not expect business demand to recover to pre-pandemic levels until next summer at the earliest as the ongoing Covid-19 crisis and the looming Brexit deadline continue to hit confidence.
A survey by Deloitte revealed that more than two-thirds of chief financial officers do not expect demand for their own businesses to bounce back fully until after the second quarter 2021.
The finance leaders ranked the coronavirus pandemic as the top risk to their companies, followed by rising geopolitical tensions and the impact of Brexit.
The survey of more than 100 chief financial officers, including 21 from FTSE 100 firms, found that the vast majority of businesses are still facing high or very high levels of uncertainty over the future.
Almost two-thirds of those surveyed said they expected interest levels to remain between 0.1 and 0.5 per cent over the next two years, while over half predicted that the base rate will remain at 0.1 per cent at this time next year.
Just six per cent anticipated negative interest rates in a year’s time.
Over three-quarters of finance leaders expect UK firms to reduce capital expenditure over the next 12 months, while the pandemic has seen a shift in investment away from buildings and workplace infrastructure and towards areas such as restructuring and automation.
Despite the uncertainty, the majority of CFOs surveyed expect to keep most furloughed employees on their payrolls. On average they expect to retain 82 per cent of furloughed staff after the scheme ends at the end of the month.
“Business leaders expect a longer haul back to pre-Covid levels of activity,” said Ian Stewart, chief economist at Deloitte.
“With further restrictions coming into effect, businesses have scaled back expectations and are focussed on strengthening their businesses and their balance sheets. British businesses are gearing up for a long winter with Covid-19, with a full recovery on the horizon only after next summer.”
The research found concerns about the pandemic heavily outweigh fears of a no-deal Brexit, with only a quarter of finance chiefs predicting significant or severe negative effects on their business as a result of the UK’s departure from the EU.
However, roughly a third said they would reduce hiring in the event of no deal, compared to 15 per cent in a so-called thin-deal scenario that ensured tariff-free goods trade only.
Twenty-six per cent said they would reduce capital expenditure if the UK fails to secure a deal, compared to 11 per cent in the event of a thin deal.
Amanda Tickel, Brexit lead at Deloitte, said: “Finance leaders are rightly rating Brexit as one of the top risks facing their business and it’s clear CFOs expect the type of exit the UK makes from the EU to make a difference to business activity.
“With less than 75 days to the end of the transition period, we expect businesses to accelerate the implementation of their Brexit plans in the next few weeks, with a particular focus on the interplay between Brexit and Covid-19.”