Finance leaders at the UK’s largest businesses have entered 2025 with a markedly defensive outlook, as concerns over US trade policy, persistent inflation and rising operating costs weigh heavily on sentiment. The Deloitte CFO Survey Q1 2025, conducted in late March before the introduction of sweeping US tariffs, shows corporate caution deepening to levels not seen since the early stages of the Covid-19 pandemic.

Cost control has surged back to the top of the priority list, according to the survey. Nearly two-thirds of CFOs (63%) say reducing costs is a strong focus over the next 12 months. That’s the second-highest reading on record, surpassed only during the pandemic. Meanwhile, the appetite for expansionary strategies such as launching new products or entering new markets remains muted. The gap between defensive and growth priorities is now among the widest seen since 2021.

Geopolitics and global uncertainty

Geopolitical risk has risen sharply, with 65% of CFOs now rating it as a significant threat to their business. That’s the highest level recorded since the invasion of Ukraine and comes even before the latest tariff announcements from the US administration.

The risk of tariffs, sanctions or barriers to market access is particularly prominent. Just a year ago, only 15% of CFOs viewed these issues as serious. That figure now stands at 46%. Other concerns linked to geopolitical instability include cyberattacks (highlighted by 44% of respondents) and rising taxation (31%).

Almost half of all CFOs now describe the level of economic and financial uncertainty as “high” or “very high.” It’s the most unsettled reading since the final quarter of 2023 and reflects a deepening sense of unease across the business landscape.

The US economy is also emerging as a specific concern. The number of CFOs citing volatility in US growth as a top risk is the highest since Deloitte began asking the question. With Wall Street faltering, consumer sentiment weakening, and the spectre of retaliatory trade measures looming, it’s little surprise that companies are reassessing their exposure to US-linked risks.

Structural concerns and spending pressures

Beyond external shocks, structural worries are creeping back onto the radar. Issues such as weak productivity and declining UK competitiveness are gaining prominence. These concerns, long considered low-priority, are now back at levels last seen in 2014, when the measure was first introduced.

Internally, CFOs are facing a mounting squeeze on margins. Around six in ten expect operating costs to increase this year, while only a third foresee revenue growth. The combination of wage pressures, higher employer National Insurance contributions, and inflation is putting bottom lines under stress.

As a result, companies are pulling back. A net 30% expect to cut capital expenditure in the next 12 months, while nearly six in ten anticipate reductions in discretionary spending. These are some of the most cautious investment expectations recorded in more than a decade.

Labour market indicators soften

Recruitment challenges are easing, but not necessarily in a good way. Just 29% of firms now report more than mild hiring difficulties, a steep drop from the 86% recorded three years ago. The shift likely reflects weaker labour demand as growth slows.

UK CFOs are also scaling back their hiring plans. The data points to the sharpest expected decline in headcount since the third quarter of 2020. Wage growth expectations have dipped too, falling to 3.0% from 3.6% in the previous quarter, as companies look to contain costs.

Caution is also evident in how companies view risk. Just 12% of CFOs say now is a good time to take greater risks onto the balance sheet. That’s less than half the long-term average and reflects a broader retreat from bold strategic moves.

Meanwhile, inflation expectations have nudged higher. CFOs now anticipate inflation at 3.1% in a year’s time and 2.6% over a two-year horizon, up from 2.5% and 2.4% respectively last quarter. It’s the third straight quarter that inflation forecasts have been revised upward.

While rate cuts remain on the horizon, expectations have shifted. CFOs now expect the Bank of England base rate to fall to 4.0% over the next year. A year ago, most believed it would already be at 4.25% by now. The stubborn nature of inflation has clearly complicated the picture.

Caution on credit and confidence

Credit conditions haven’t changed much, but costs continue to bite. One-third (34%) of CFOs say credit is readily available, while 37% report that borrowing remains expensive. That cost element appears to be one of the factors keeping a lid on investment and hiring.

Corporate sentiment is still positive, but momentum has slowed. A net 14% of CFOs said their outlook had worsened over the past three months, suggesting that uncertainty is beginning to erode confidence in future performance.

Defensive positioning becomes the norm

Altogether, the data suggests UK CFOs are preparing for a long stretch of turbulence. Risk appetite is low, margins are under pressure, and strategic priorities have shifted firmly toward cost control and resilience.

More than six in ten finance chiefs are prioritising cost reduction. That’s more than double the number focused on capital investment or product innovation. In a world of higher input costs, trade friction and slower growth, this defensive stance may not just be a preference but rather a necessity.

Although many firms are not yet forecasting a recession, the accumulation of risks is prompting a more cautious approach to everything from hiring to expansion. CFOs appear to be waiting for greater clarity before re-engaging in growth initiatives. For now, corporate strategy is being shaped more by discipline than by ambition.