The quarterly CFO survey is the authoritative barometer of UK corporates’ sentiment and is established among media outlets and policy makers. The survey found that confidence and risk appetite among CFOs continued to be subdued, with finance leaders predicting a decline in revenues and CFOs laying more emphasis on cash accumulation than at any other time since 2010.
Ian Stewart, chief economist at Deloitte said: “Put mildly, it’s been a turbulent few weeks and there’s been little change in confidence and risk appetite among CFOs, as many priced in a tougher environment at the start of the year. They went into March braced for tough times and the latest round of Brexit uncertainties have not materially changed that picture. When expectations are already low, it’s harder to be disappointed.”
David Sproul, senior partner and chief executive of Deloitte North West Europe, added: “Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets. They appear to be battening down hatches for tougher times ahead. While last week’s announcement on a further deferral of the UK’s departure from the EU removes an immediate unknown, the continuation of uncertainty is causing much frustration for UK businesses. As well as stashing cash, many continue to delay investment. Businesses remain in a period of further limbo.”
The survey pointed out that CFOs considered Brexit the biggest risk facing their businesses, followed by weak demand in the UK and rising geopolitical risks worldwide.
CFO risk appetite has remained to its lowest level in nine years. With low expectations for revenue growth, CFOs are expecting a decline in UK corporates’ revenues over the next 12 months. Funding for large corporates was also tight compared to the last five years.
Cash is king
In an uncertain environment, with Brexit looming, large businesses are holding high levels of cash to protect against risks. According to data, at the end of 2018, UK corporates held £747 billion in cash!
In terms of interest rate expectations, these were also low compared to the previous quarter, the survey revealed.
Deloitte reported that “40% of CFOs now expect the Bank of England’s base rate to be 1% or higher in a year’s time, down from 58% in the fourth quarter.”
Deloitte interviewed 89 CFOs, most of them expressing their pessimism about the short-term effects of Brexit, with 49% of CFOs expecting to reduce their capital expenditure. 53% of CFOs also expect to reduce hiring staff because of Brexit.
Deloitte’s survey (26 March-7April) came after the disappointing news that Britain was not going to exit the EU on 29 March, and before Prime Minister Theresa May managed to secure a delay up to 31 October.
The Brexit ‘flextension’ announced on 11 April means that businesses continue to experience uncertainty. Brexit could even happen earlier than 31 October 2019, with a transition period up to 31 December 2020.
With growing pessimism and uncertainty, it is vital to keep your business up to date and turn to a foreign exchange expert for your currency needs. If you are regularly exporting or importing goods or services overseas, it is essential that you make your regular payments with a foreign exchange broker such as Universal Partners FX. UPFX staff consists of advisers and specialists in foreign exchange who monitor markets and devise tools and hedging strategies to protect your business from the risks that are presented with a volatile currency market.