83% of UK CFOs expect business environment to deteriorate
Meanwhile, the percentage of CFOs who think that now is a good time to take a greater risk onto their balance sheets has fallen to 4%, the lowest since the failure of Lehman Brothers in 2008.
Ian Stewart, chief economist at Deloitte, explains: “Events in the last three years, and recent news suggesting the economy shrank in the second quarter, have added to worries about the impact of Brexit.
“This is not solely a question of the long-term outlook.
“Brexit has not happened, but it is acting as a drag on corporate sentiment and spending.
“Almost two thirds of CFOs expect to reduce hiring in the next three years as a result of Brexit and almost half (47%) expect to reduce capital spending, suggesting a cautious approach from businesses.
“Ironically, risk appetite in the corporate sector has slumped just as it has taken off in the equity market.
“Measures of financial market volatility have declined, even though a majority of CFOs rate uncertainty as being at high or very high levels.”
The Deloitte CFO Survey gauges sentiment amongst the UK’s largest businesses.
79 CFOs participated, including CFOs of 48 FTSE 350 companies.
The total market value of the listed companies that participated is £345 billion, approximately 15% of the UK quoted equity market.
The Q2 2019 CFO survey ran between 12th and 28th June 2019.
While CFOs are battening down the hatches, investor confidence has surged, with the FTSE breaching 7,600 in July.
Ian Stewart said: “Equity valuations imply that investors believe central banks will save the day but the downbeat mood of UK CFOs suggests corporates are less sanguine.”
The survey shows that pessimism about the short-term effects of Brexit remains elevated, with CFOs expected to reduce hiring the highest level in three years and 25% cutting M and A as a consequence of Brexit.
There has also been a drop in confidence among CFOs.
Of those surveyed, 9% say they are more optimistic about the prospects for their company than they were three months ago, compared to 13% in Q1 2019.
Brexit remains the largest risk business face, rising geopolitical risks are now the second largest concern for business, increasing to 60 from 55 last quarter.
The risk of greater protectionism in the US is also rated at 60, up from 49 in Q1.
Concerns about weakness in emerging markets and the euro area feature at the bottom of the CFO risk list.
Corporates remain focused on defensive strategies with 52% citing cost control as a strong priority, down percentage point from Q1.
This is followed by increasing cash flow, a strong priority for 43% of CFOs, down from 52%. ■