CFOs positive on UK economy despite risks

Policy uncertainty at home and economic and geopolitical risks overseas are the central challenges facing chief financial officers (CFOs)

Paul Feechan, from Deloitte
Paul Feechan, from Deloitte

The forthcoming General Election and potential deflation and weakness in the Eurozone pose the biggest challenges facing chief financial officers (CFOs) of the UK’s largest companies, a survey has found.

Business advisor Deloitte has carried out its latest CFO Survey which gauged the views of 119 CFOs of FTSE 350 and other large private UK companies.

Asked to rate the level of risk posed between 0 and 100, CFOs attached a 63 rating to the General Election and 56 to deflation and weakness in the Euro area and to a possible referendum on the UK’s membership of the EU.

Despite the uncertainties, CFOs are upbeat about prospects for UK earnings growth and business investment in 2015.

On average, the officers expect earnings in their firms to rise by 2.9% this year – faster than CPI inflation which economists expect to increase by 1.3%.

The percentage of officers putting capital expenditure as a strong priority has also risen.

On average, they expect their investment in the UK to rise by 9% in 2015, following growth of about 8% in 2014.

Deloitte’s Q4 2014 survey also found that risk appetite among CFOs fell in Q4, from 71% to 56%.

In all, 60% of CFOs enter this year with above normal, high or very high levels of uncertainty facing their businesses, up from a low of 49% in Q2 201, but the same level seen 12 months ago.

Paul Feechan, office senior partner at Deloitte in Newcastle, said: “The central challenges facing the UK’s largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas. “Rising levels of uncertainty have caused a weakening of corporate risk appetite which, nonetheless, remains well above the long-term average.

“Concerns about policy change after May’s General Election have risen significantly and this is seen as the biggest risk facing UK business in 2015.

“Deflation and weakness in the euro area is a growing concern and is now the second greatest business risk, followed by a UK referendum on EU membership and by emerging market weakness. Again, CFOs believe that the level of threat posed by each has risen over the last three months.

“This marks a big shift in thinking.

“Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere.

“CFOs expect 2015 to be a year of investment and of recovering real earnings in the UK. Corporate and consumer spending look set to lend the UK economy important support, suggesting the UK will post decent growth through 2015.

“Corporates believe that the long consumer squeeze has ended.

“On average, CFOs expect wages in their businesses to rise by 2.9% in 2015. With economists expecting inflation of just 1.3% in 2015, real earnings look set to register the first annual increase in eight years in 2015.

“CFOs are also predicting a buoyant year for business investment, with an average growth of 9% forecast for 2015.

“Following growth of 8% in 2014, this would put the UK at the top of the league for investment growth in the major industrialised nations and, if realised, will take the share of UK GDP accounted for by business investment to a 15-year high by the end of 2015.

“CFOs are positive on the UK business environment. Most do not think the UK has a particular productivity problem and CFOs overwhelmingly see the UK as a good place to do business.”

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