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CFO optimism at record high as Covid risk recedes

CFOs have moved on from defensive strategies like cost control and are expecting a strong recovery in profits, with some anticipating highs not seen since mid-2014. 

14th Apr 2021
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Subway station at Canary Wharf against skyscrapers.

This week saw the easing of lockdown restrictions for the hospitality sector and non-essential shops in England, with the rest of the UK scheduled to do the same in the coming weeks. 

Consumers have been queuing around the block to enter department stores, while restaurants were fully booked weeks in advance. Deloitte’s CFO survey for Q1 2021 mirrors these scenes, reporting “a turbo-charged surge in business optimism” as uncertainty and risks around the pandemic and Brexit recede. 

The quarterly survey, conducted between the 17 and 30 March 2021, tracked business leaders optimism at a record level. The pandemic and Brexit had forced CFOs to tighten their cost control defenses, but the easing of lockdown restrictions and the success of the mass vaccination programme has instilled enough confidence to rekindle hiring and capital expenditure. 

Only 19% of the CFOs surveyed think the pandemic will reduce capital spending in the next three years - a significant drop from 65% last summer. The same sentiment was found with only 29% of CFOs expecting the pandemic to reduce hiring, down from 74% over the same period. 

Before the pandemic hit, Brexit inflicted the most uncertainty on CFOs. But the research suggests that finance leaders are now looking beyond the economic uncertainty wrought by Brexit and Covid. 

Brexit disruption

That’s not to say Brexit has been an easy transition for the business leaders. The Deloitte survey found that close to 10% experienced significant or severe disruption to their business due to the UK leaving the European Union. But the report found that only 3% expect severe levels of disruption in a year’s time. 

While CFOs expect Brexit to have a long term impact on the UK business environment, it no longer poses the greatest threat to them and is only their seventh biggest concern. 

“Having come through the deepest downturn in 300 years UK businesses are firmly focussed on growth. Pent-up business and consumer demand are set to power a strong profits recovery, one already anticipated by the surge in equity markets since February,” said Ian Stewart, Deloitte’s chief economist.

Office vs home working

The news of the successful vaccine rollout and the fading impact of the UK leaving the EU allowed senior finance managers to focus on recovery. One of the big decisions for business leaders over the next few months is the return to the office. 

For the last year office blocks sat empty and employees adjusted to the Covid-enforced working from home. However, 67% of CFOs expect the bulk of their employees to return to the office by the third quarter of 2021. 

Business leaders are not anticipating a return to the old 9-to-5 working patterns. Instead Deloitte’s senior partner and CEO Richard Houston expects a swing towards a hybrid working model that “combines the benefits of office working - from collaboration to innovation - with the flexibility of remote working”. He earmarked technology transformations such as AI, virtual reality and the cloud as key to this hybrid model. 

More broadly, Houston was encouraged by the optimistic outlook from the 100 CFOs surveyed: “The focus now needs to centre on expanding capacity and improving supply chains so that pent-up demand can be successfully met. Making the most of the long-term transformations sparked by the pandemic will be key to the future recovery of businesses and the economy.”

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