CFOs predict choppy post-Brexit waters

The early months of 2019 have seen corporate Britain echoing to the sound of hatches being firmly battened down. The watchword for the UK’s CFOs is caution, bordering on despair. Over 75% of CFOs believe the UK will be worse off following its departure from the EU. This is the conclusion of research by Deloitte, which has identified a drop in capital expenditure and an emphasis on planned cost reduction.

Who are these CFOs?

The Deloitte researchers carry out the survey quarterly. They survey 110 CFOs – 20 from 20 FTSE 100 companies and 41 from FTSE 250 companies. The remainder are CFOs of other UK-listed companies, large private companies and UK subsidiaries of major overseas-listed companies.

The chief economist at Deloitte is Ian Stewart. He explains, ‘This survey shows that uncertainty over Brexit is driving a marked shift towards defensive balance sheet strategies among British businesses.

‘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 observes that CFOs seem determined to adopt defensive strategies for the coming twelve months. 56% quote cost control as their main priority, compared with 53% in Q3. Almost as critical is the need to increase cash flow. This is regarded as a priority for 47% of CFOs, reduced from 48%.

CFOs also expect their fellow UK corporates to cut down capital expenditure over the next 12 months.

Risk appetite shrinks

The Deloitte report also reports a significant decline in risk appetite – plummeting to a nine-year low. Furthermore, expectations for income growth have dropped to the lowest level since the 2016 EU referendum.

Expansionary strategies are out of favour. Fewer companies are talking excitedly about introducing new products and services or increasing capital expenditure. The same goes for expansion by acquisition. CFOs are taking on the most defensive mix of strategies seen for nearly a decade.

David Sproul is senior partner and chief executive of Deloitte North West Europe. He says, ‘This survey shows a definite “hunkering down” mentality across the UK’s CFO community, highlighted by the focus on cost control, a pause on hiring and low appetite for risk.
‘Given the ongoing Brexit uncertainty, this attitude is understandable and demonstrates that 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.’

Brexit business advisers - here to help

Regardless of personal points of view, no one is arguing that the UK isn’t facing massive economic uncertainty.  However, there’s no need for you to travel these choppy seas alone.  We’re business experts, with a particularly firm grasp of international trade issues.  Don’t fret about Brexit.  Pick up the phone and we’ll talk.

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This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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