BY Fraser Tennant
A challenging and uncertain macroeconomic environment caused by Brexit fears is weighing on UK companies and their job creation and investment plans, according to a new Deloitte survey.
In its ‘CFO Survey: 2019 Q2’ – which features the views of 79 chief financial officers (CFOs) from 48 FTSE 350 companies – Deloitte reveals that 83 percent of company chief financial officers (CFOs) say they expect the long-term business environment to deteriorate as a result of the UK leaving the European Union (EU). Furthermore, only 4 percent believe the time is right to take greater risk onto their balance sheets.
In terms of the short-term effects of Brexit, pessimism remains elevated, states the report, with 62 percent of CFOs expected to reduce hiring – the highest level in three years – and 25 percent likely to cut their M&A activity. The survey findings also show a drop in confidence among CFOs, with only 9 percent saying they are more optimistic about the prospects for their company than they were three months ago.
“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,” said Ian Stewart, chief economist at Deloitte. “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.”
According to the survey, almost two thirds (62 percent) of CFOs expect to reduce hiring in the next three years as a result of Brexit and almost half (47 percent) 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,” added Mr Stewart. “Measures of financial market volatility have declined, even though a majority of CFOs rate uncertainty as being at high or very high levels.”
Furthermore, the survey found that UK companies remain focused on defensive strategies with 52 percent citing cost control as a strong priority. Increasing cash flow is also a strong priority for 43 percent of CFOs, down from 52 percent in Q1.
Richard Houston, senior partner and chief executive of Deloitte North and South Europe, concluded: “Companies are looking for more certainty around our country’s economic future, as they prepare themselves for a post-Brexit environment.”
Report: Deloitte CFO Survey: 2019 Q2