Optimism among chief financial officers (CFOs) has reached an 18-month high, according to a Q1 survey by Deloitte, although Brexit still tops the list of risks perceived by CFOs. However, the general perception of risks is lower overall for six out of eight of the main risks faced by large companies in the UK.
The survey also found growing confidence in the recovery of the euro area. Two of the major external risk for CFOs – concerns about weakness in emerging markets and in the euro area – are perceived to be at their lowest levels over the past three years.
The decreasing perception of risks is leading to more pro-growth strategies among companies, such as capital spending and introducing new products and services. And fewer CFOs now expect Brexit to impact their hiring plans in the next three years: from 66 per cent in June last year to 30 per cent in Q1 2017. However, the majority of CFOs continue to hold the opinion that Brexit will have a negative effect on business in the long term, although the degree of negativity has fallen slightly in the past year – as shown in the chart below:
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The survey asked about nine of the main risks perceived by British CFOs and there was a decline in the degree of perceived risk in most categories. The only two risk categories where CFOs said there is an increased risk to business was in US policy uncertainty and in the risk of 'a housing/financial assets bubble and the risk of higher inflation'. And as noted, despite an easing of caution and perception of uncertainty, the effects of Brexit are still the leading risk to businesses.
Less pessimism not the same as optimism
And although CFOs are less pessimistic about capital expenditure, hiring and discretionary spending, they still expect UK corporates to decrease spending in each area over the next 12 months, as shown in this graph:
Ian Stewart, Deloitte's UK chief economist, said: “The Brexit shock that hit corporate spirits last June has eased. Optimism among CFOs has hit an 18-month high and uncertainty has fallen from a post-referendum record high to levels last seen in early 2016. Brexit still tops the risk list, although at a lower reading than the last two quarters. CFOs believe the Brexit headwinds have eased and see far less damage to their spending plans than earlier expected. While most still see Brexit having an adverse effect on the business environment, even here the degree of negativity has fallen.”
CTMfile take: These findings are open to interpretation but it seems that the graphs do show a lesser degree of fear about the Brexit process that will unfold over the next 24 months. There's less pessimism BUT 60 per cent of CFOs still think that Brexit will be bad for UK business in the long run. The last graph shows that expectations on capital expenditure and hiring are bouncing back from a low in 2016 but they have not yet reached positive territory.
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