Brexit worries remain at fever pitch among the UK’s top finance leaders, according to the latest Deloitte CFO survey. Respondents expect declining revenues, more cost pressure and tighter credit conditions.
In some ways, it’s not a big surprise that a selection of the UK’s top CFOs is feeling pessimistic. Stultifying chaos in Westminster, spiralling economic uncertainty and potential labour shortfalls will do that.
But to see concerns put in writing brings such worries into sharp relief. Eight-in-ten CFOs (81%) said they expect the long-term business environment to be worse as a result of the United Kingdom leaving the EU.
This is the highest level since the concussive days of the Referendum in 2016. It’s tempting, of course, to write off survey results -- but the quality of Deloitte’s respondents adds an authoritative register to the survey.
Deloitte received input from 89 CFOs, including CFOs of 48 FTSE 100 and FTSE 250 companies. The total market value of the listed companies is £377bn, approximately 15% of the UK quoted equity market.
In anyone’s books, that’s a pretty reliable bellwether for big business sentiment, particularly as it relates to Brexit. Over 80% of CFOs now expect Brexit to lead to a deterioration in the overall environment for business in the long term. Any optimism over what a no deal EU exit would entail has dipped to 8%, down from 10% in the last survey and a record high of 19% in the Q1 2017 study.
Worries over the short-term effects of Brexit remain heightened as well. A majority of respondents expected M&A activity, capital expenditure and hiring by their business to decrease over the next three years as a consequence of Brexit.
Overall, the CFO report established three significant trends: stagnant revenue growth, cost pressure and credit.
Increasing economic headwinds mean CFOs are expecting revenue growth to be stifled. Alongside that, 79% of respondents expect costs to spike. And third, credit conditions have become “less accommodative”, with credit pricing and availability having deteriorated.
This triptych of pressures has led to businesses hoarding cash as a precautionary measure. ONS data indicates that at the end of 2018, UK corporates held a record £747bn in stock, equivalent to 35% of GDP and almost one-third higher than in early 2016.
These cash reserves are set to swell in 2019, as the survey shows that CFOs are placing greater emphasis on cash accumulation than at any time since 2010. Deloitte’s Dave Sproul colourfully referred to this as “bullet-proofing” the balance sheet.
“While last week’s announcement on a further deferral of the UK’s departure from the EU removes an immediate unknown, the continuation of uncertainty is causing much frustration for UK businesses,” Sproul said. “As well as stashing cash, many continue to delay investment. Businesses remain in a period of further limbo.”