Brexit pessimism is running high among British chief financial officers (CFOs), with three out of four expecting Brexit to lead to worse economic/business conditions in the long term. The quarterly CFO survey by Deloitte found that 73 per cent of UK CFOs and group financial directors expect a long-term negative impact from Brexit, up from 60 per cent in the previous quarter.
CFOs say Brexit is considerable risk to business
In Deloitte's Q4 2017 CFO survey, CFOs gave a weighted rating of 62 (on a scale of 0 to 100) to the business risk posed by Brexit – an increase from 58 in the previous quarter.
Business will be worse-off after Brexit
The other top risks to business identified by UK CFOs include:
- weak demand in the UK;
- poor productivity/weak competitiveness in the UK economy;
- the prospect of further rate rises and a general tightening of monetary conditions in the UK and US;
- a bubble in housing and/or other real and financial assets and the risk of higher inflation.
Survey carried out during Brexit talks low ebb
The quarterly survey of CFOs and group finance directors was conducted between 3-15 December, bearing in mind that, during the first week of December, Brexit politics hit a considerable low point: Northern Ireland's DUP had just rejected proposals for the Republic of Ireland border with Northern Ireland at the 11th hour of stage one of Brexit negotiations; and UK Brexit Minister David Davis had just told a parliamentary committee that the government has not carried out impact assessments on Brexit. Although the Brexit talks with the EU went on to reach a provisional deal by December 8, it's not wholly surprising that the survey shows negative sentiments on Brexit from the 112 executives that were polled from large UK-based companies, including 83 listed companies. The key findings were that:
- domestic concerns top CFOs’ risk list, with Brexit concerns mounting;
- focus on cost control highest in eight years;
- despite uncertainties CFOs determined to grow their businesses.
Corporates face period of cost control
The survey also found that CFOs continue to expect to reduce their own spending as a result of Brexit, with more than half saying it will lower their discretionary spending. A third or more will scale down their capital investment and hiring plans. Two-thirds of CFOs expect operating costs to rise over the next 12 months, close to the highest reading in more than six years. And 21 per cent of CFOs think that now is a good time to take greater risk onto their balance sheets. Risk appetite has remained broadly around these levels since late 2016.
Deloitte's David Sproul said: “While the impact of Brexit remains the dominant concern for CFOs, it has not forced a retreat from growth or crushed the animal spirits of the corporate sector. The central challenge for UK business over the next 12 months will be achieving growth in an environment of stringent cost-control.”
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