More than three quarters of CFOs believe the UK will be worse off as a result of leaving the EU, according to research from Deloitte which identified a fall in capital expenditure and a focus on cost reduction going forward
The firm’s latest quarterly CFO Survey found 80% expect the long-term business environment to decline, with more than half saying that hiring will slow over the next three years.
Of the CFOs surveyed, 49% also said that their capital expenditure will slow, an increase from 44% in Q3. While increasing in each of the last three quarters, neither is as high as they were immediately after the referendum.
The research is based on 110 CFOs including the CFOs of 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.
Ian Stewart, chief economist at Deloitte, said: ‘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 suggests CFOs continue to focus on defensive strategies for the coming twelve months, with 56% citing cost control as a strong priority, compared with 53% in Q3. This is followed by increasing cash flow, a priority for 47% of CFOs, down from 48%.
CFOs also expect fellow UK corporates to reduce capital expenditure over the next 12 months.
Risk appetite has dropped to 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. CFOs have now adopted their most defensive mix of strategies in nine years, Deloitte found.
David Sproul, senior partner and chief executive of Deloitte North West Europe, said: ‘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.’
Report by Pat Sweet