The UK's prolonged negotiations to leave the European Union are having a negative impact on UK corporates, with chief financial officers (CFOs) adopting their most defensive mix of strategies in nine years. CFOs said that cost reduction is currently a priority, as businesses scale back on recruitment and tighten spending. They are also showing less appetite for capital expenditure and mergers and acquisitions (M&A), as well as introducing new products or services. According to Deloitte’s latest CFO Survey, about 80 per cent of CFOs also said they expect the long-term business environment to be worse as a result of leaving the EU.
Deloitte's chief economist Ian Stewart said: “This survey shows that uncertainty over Brexit is driving a marked shift towards defensive balance sheet strategies among British businesses. With the UK’s growth prospects heavily dependent on the so far uncertain nature of its exit from the EU, corporates are cutting back on capital expenditure and hiring, focusing instead on cost reduction. Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control. Businesses seem to be increasingly pricing in a worst-case outcome. Anything better, including a delay or a deal, could deliver a Brexit bounce in sentiment.”
The survey also found that:
- CFOs expect fellow UK corporates to reduce capital expenditure over the next 12 months;
- risk appetite is at a nine-year low and expectations for revenue growth are down to the lowest level since the EU referendum in 2016;
- expansionary strategies such as introducing new products and services, increasing capital expenditure and expanding by acquisition have fallen out of favour.
Deloitte's David Sproul added: “Business urgently needs clarity about the UK’s future relationship with the EU. Unless a favourable deal is agreed, it seems likely that this current lack of appetite for investment or recruitment will continue.”
The 2018 fourth quarter survey was conducted on 8-24 January and gathered responses from 110 CFOs, including from 20 FTSE 100 and 41 FTSE 250 companies. The rest were CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 75 UK-listed companies surveyed is £390 billion, or approximately 16 per cent of the UK quoted equity market.
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