CFOs in the UK are more confident that their businesses can withstand economic and strategic challenges ahead as inflation continues to fall and credit conditions stabilise, according to a quarterly survey report from Deloitte.
“The uncertainties that have clouded the business scene for much of the last eight years, driven by Brexit, domestic politics, COVID, and, in recent years, inflation, seem to be clearing,” the report said. “On balance, CFOs report feeling more optimistic about the financial prospects of their businesses now than three months ago.”
Seventeen per cent of CFOs are more positive than they were three months ago, a news release on the report said, with sentiment rising for the third consecutive quarter. “For the first time in three years, CFOs expect margins to increase over the next 12 months.”
Sixty-four CFOs participated in the March survey, including CFOs of eight FTSE 100 and 23 FTSE 250 companies.
Present economic conditions are more favourable for CFOs’ risk appetite, the report said. They are focused on controlling costs and building up cash.
CFOs are in a defensive mode, with 56% focused on reducing costs over the next 12 months, up 5 percentage points from the fourth quarter of 2023. However, as uncertainty falls, 43% are eager to increase their cash flow over the next year, down from 47% the previous quarter, suggesting that CFOs are proceeding with caution in this area.
“For now, expansionary strategies, such as capital spending and bringing in new products or services, are on the backburner,” the report said. “CFOs seem to be waiting for evidence of a more established recovery before tilting towards a more expansionary strategy stance.”
Despite hesitancy on pursing expansionary strategies, uncertainty is down for UK CFOs, the report said. The proportion of respondents expressing high or very high levels of uncertainty facing their companies dropped to 36%, the lowest number since late 2021. The economic environment has made 20% of CFOs confident about taking greater risk onto their balance sheets, up slightly from late 2023.
Geopolitical concerns persist
Geopolitics has topped CFOs’ risk list for the seventh time in nine quarters, the report said.
“This quarter, we asked CFOs to assess the channels through which adverse geopolitical events could damage their own businesses over the next three years. By far, their greatest source of concern was cyberattacks,” the report said.
Seventy-two per cent of CFOs anticipate that cyberattacks as a consequence of adverse geopolitical developments will be a significant risk to their companies over the next three years, the report said. More than half of CFOs surveyed (51%) expect this risk to increase over the next three years, 46% expect it to stay the same, and only 3% of finance leaders expect it to decrease over time, the report said.
Ian Stewart, chief economist at Deloitte, said in the news release that the decline in overall uncertainty does not apply to geopolitics. “The overwhelming majority of CFOs expect geopolitical risk to increase or stay the same in the next three years,” he said. “On this front at least, CFOs are anticipating further uncertainty.”
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.
