CFOs embrace the new year with optimismby
Emerging from a year of high interest rates and inflation, CFOs are beginning the year in positive spirits with expectations that these challenges will decrease, according to Deloitte’s quarterly CFO survey.
The start of 2024 has sparked a wave of optimism, with Deloitte’s survey showing a continued increase in positive sentiments among CFOs for the second consecutive quarter.
A total of 11% more CFOs from the UK’s largest firms expressed greater hope and certainty regarding their business’s financial prospects compared to three months ago. The biggest reason for this is the decreased worries that CFOs have about inflation and high interest rates.
Deloitte's survey, conducted with 72 CFOs from 35 UK-listed companies, found that inflation and rate concerns have eased since the last quarter. The weighted average rating of the risk of higher inflation was at 58% in the last quarter and has now dropped down to 53%.
The threat of increased inflation and further rises in the interest rate has therefore decreased, contributing to a renewed sense of confidence among CFOs.
Ian Stewart, chief economist at Deloitte, said that these findings might seem contradictory to recent economic updates, especially the third-quarter GDP contraction alongside predictions of slow growth in the UK for 2024.
“But, while the pace of growth softened in 2023, activity proved more resilient than expected, with unemployment at low levels, corporate profitability holding up and an absence of stress in financial markets. Crucially, inflation has fallen sharply since the summer, bolstering expectations of earlier interest rate reductions,” Stewart said.
Finance leaders are also anticipating price and wage pressures to soften within the next two years. They see the Bank of England’s base rate dropping from its current level of 5.25% to 4.75% in a year’s time.
Alongside this, 63% of CFOs anticipate a rise in long-term investment in new technology, reflecting their confidence in using technology to improve their business.
All these factors have contributed to an increased optimism and a brighter outlook for the year ahead.
Yet, the survey indicated a heightened concern regarding geopolitical factors, with 63% of CFOs, up from the previous 59%, identifying these elements as the primary external risk to their business.
CFOs continue to maintain a predominantly defensive stance, prioritising cost reduction and increasing cashflow for the next 12 months. Expansionary strategies like introducing new products or entering new markets have notably diminished, with only 15% of CFOs saying it is a strong priority.
“Whilst finance chiefs are starting 2024 in positive spirits, this is tempered by high levels of uncertainty, concerns around geopolitics, and low UK productivity. CFOs foresee growth ahead but – based on their defensive balance sheet stance – not imminently,” Stewart said.
"Corporates are focused on cutting costs and building up cash rather than hiring, capital spending or M&A. But unlike in previous periods of uncertainty the financial system is operating and larger corporates can access debt, albeit at higher rates,” he continued.
Stewart mentioned that this situation is less concerning for larger corporations due to their increased ability to navigate challenging periods, making them less vulnerable to constrained credit conditions.