Deloitte’s CFO report: Brexit anxieties mount – but it’s not all bad

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Deloitte sent out its annual CFO report this morning and it’s a case of new year, familiar challenges.

Brexit, the report showed, is at the forefront of British CFOs’ minds despite December’s breakthrough talks. Pessimism about the effects of Brexit has grown: about three-quarters expect Brexit to lead to a worsening of conditions in the long term, up from 60% in the previous quarter.

The macro concern of regional politics has been made more acute by insipid economic growth, said Deloitte. Weak UK growth follows as the second greatest risk facing business this year, with concern about productivity in third place.

A net 66% of CFOs expect operating costs to rise over the next 12 months, close to the highest reading in more than six years. Despite a slight improvement, CFO expectations of a decrease in operating margins over the next 12 months persist.

Speaking to AccountingWEB about the mounting Brexit anxieties, James Heath, CFO of the challenger bank CivilisedBank said the enduring uncertainty of the UK’s withdrawal inhibits CFOs ability to forecast. “When I was the CFO at ABN Amro, the chief economist always told me ‘Don’t ask me to a forecast for Brexit, because no one knows’.

“I’m not an economist, but if you ask me: it’s going to be difficult to withdraw from one of the largest economic blocs in the world and for there not be a negative impact on the UK economy.

“If you look at any sort of IMF, World Bank, Treasury forecast, they’re all forecasting a drop in GDP and that’s down to Brexit. Now the question is, how prolonged or deep will that be and what impact will that have on UK SMEs?”

Following the Bank of England’s November rate rise – the first since the financial crisis – the majority of CFOs see rates rising further in 2018. Eighty-five percent expect the base rate to be 0.75% or above in a year’s time, up from 42% in the third quarter.

The renewed popularity of protectionism with American policymakers have also left CFOs feeling wobbly, Deloitte’s report showed. President Trump’s throwback economics have coalesced with the “weakness or volatility” in emerging markets (and, again, looming Brexit) to create a tricky playing field.

It’s not all bad, though

“Encouragingly, far from backing away from growth as they did in previous periods of uncertainty,” said Dave Sproul, Deloitte’s chief executive, “CFOs are putting increased weight on expansion.”

Growth in spite of economic uncertainty and stringent cost control is the top priority according to the report. Expansion, “whether organically, through acquisitions, introducing new products and services or moving into new markets is at its highest level since we first asked this question in 2009,” explained Sproul.

Ben Eaton, the finance director the Dining Club Group agreed with Sproul's assessment. Speaking to AccountingWEB, Eaton explained that while “Brexit and a forecast slowdown in the UK economy” have made it hard, Dining Club Group is dead set on pursuing growth. “At the Dining Club Group, we will spend where we find new growth opportunities, which is a strategy that could make sense for other growth seeking corporates, especially whilst credit remains relatively cheap and available.”

And while American and other regions’ volatility loom large, the continued recovery of the euro area economy has provided some relief, with economic weakness in the region falling sharply as a concern in the past three years.

Thirty-eight percent of CFOs asked for the Deloitte report rate the level of external financial and economic uncertainty facing their businesses as “high or very high”. And while 38% is a high number, it’s actually significantly lower proportion than during the euro crisis in 2011-12 and the immediate aftermath the EU referendum in 2016.

Adding to Sproul’s comments, Ian Stewart, Deloitte’s chief economist said: “CFOs enter 2018 more focussed on controlling costs than at any time in the last eight years. Despite this, CFOs are more optimistic today than they have been over recent years, and perceptions of uncertainty are far lower than during the euro crisis and following the referendum.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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11th Jan 2018 10:18

What a load of tosh. The EU will HAVE to do a reasonable deal with the UK if they want to survive. I understand that the German Banks are already negotiating with our lot. Watch this year for the EU backing down when they realise what's at stake. It's about time the "big boys" stopped their posturing and got on with making UK work with the rest of the world as well as the EU.

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By KH
to johnjenkins
11th Jan 2018 10:41

I hope you're right, but I must say I don't share your optimism ... the EU will resist breaking up at all costs, so a member like the UK which has always been a thorn in their sides, and which is now exiting stage left, is just opening itself up for punitive action from the EU ... and I sincerely hope that my pessimism is totally misplaced... ......... ................

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to KH
11th Jan 2018 10:50

The reason why the EU (in its present format) will not survive is because it is not flexible and the set up is such that it can't be. The free movement of workers is a great idea but countries have to have the flexibility to say, hang on we can't take any more. I strongly believe that the more TM gets involved in the negotiations the more she is realising and agreeing with what NF has been saying for the last umpteen years.

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11th Jan 2018 10:37

Brexit won't happen. No one is that stupid.

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to numbercloud
11th Jan 2018 10:51

It shouldn't happen, but if the EU won't change their ways it will.

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11th Jan 2018 10:38

I agree with johnjenkins, a load of tosh. Any company that has around 50% of it's business with one customer is running a risk (UKplc and the EU) so these CFO's need to as JJ says stop posturing and get on with it. I suspect they are but can't loose the opportunity to use Brexit, weak economy, low pound to protect their fat salaries and store up some excuses for the future. Meanwhile we SME's get on with life and business

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11th Jan 2018 11:04

I disagree that the EU HAVE to do a reasonable deal. What has the UK got that the EU NEED and can't do themselves? We have nothing to protect. The EU will be eyeing up the financial sector and saying "we can do that, let's see if we can have a piece". There are no barriers. This is an opportunity for the 27 EU countries to cherry pick the best of what we do. Norway have a "deal" but the Brexiteers hate it - freedom of movement plus paying into the pot with no say on matters. BUT Norway have lots to protect (oil and the richest country in the world), so what makes us think we can get a better deal with nothing to protect? Selling cars is not the answer! We are not that big a market for cars and the maximum penalty is the 10% tariff, which most BMW and Merc buyers will pay to have the badge. The German car manufacturers will lose very little % in car sales with a no deal. VW sell 5 times as many cars in China than to us.

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to numbercloud
11th Jan 2018 11:28

What has the UK got? Without going into Royalty etc. we will have FREEDOM. Once the inflexable shackles have been removed watch our youngsters seize the worldly opportunities not available to them till now. TM will rather come away with "no deal" than tie the UK up in the same red tape. If the EU don't need us why are they fighting so hard to keep us in? We are the 5th biggest importer in the world. If the EU don't want our business I'm sure there are others that will.

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11th Jan 2018 11:40

As the post referendum boom continues with the stockmarket at record highs,unemployment at record lows, growth and exports forging ahead it is truly puzzling that forecasts from the IMF,treasury and World Bank can still have any credibility. The EU has failed in Britain for it was not the economic project that it claimed to be when Britain joined but a political project to build a Fortress Europe. Nearly 2 years after the referendum the EU is refusing to talk about trade and has resorted to threats and intimidation to extort a ransom. Some neighbours.
I've no doubt most CFOs are more concerned about the prospect of a far left government nationalising,regulating and taxing them out of business.

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By ASF
11th Jan 2018 15:03

I share everyone elses' hope that common sense will prevail. I fear that for us SMEs, this will be a "drag along" and not a "tag along" process, where we end up receiving the deal that bureaucrats, pressured by large companies and interest groups negotiate. I also think pragmatism will demand that our team have to "give" on some things some of us don't like to get some things UK PLC, et al want (and perhaps need). All this means that sadly, whilst I don't particularly like it (and am not too sure what any of us SMEs can do about it), we may get a deal that pleases very few, whilst the politicians walk around claiming a wonderful success. I too share the views about the historic success or otherwise of the "European Project", but just cannot see Brussels/Germany/France allowing that to fail, and can see them doing almost anything to keep the EU27 together - again with our negotiation being the victim.

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11th Jan 2018 15:21

You get a hint of what Barnier is up to by listening to NF when they met. NF stated quite clearly that Mick had only one thing on his mind and that was the federalisation of Europe. he didn't evn understand where NF was coming from. So really you cannot negotiate with someone like that. Bring on the minister for "no deal" brexit.
Let's face it if the politicians don't do good they will face the wrath at the next GE.

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11th Jan 2018 16:14

Some commentators seem to make the mistake of assuming the EU heirarchy to be rational beings focused on economic considerations and that 'common sense' will prevail on trade and other issues. But they are fanatics: fascists and bullies for whom economic considerations count for nothing in the quest for European Union. Fortunately businesses in Europe are run by more level headed rational individuals for whom trading with the UK does matter. Their voices need to be heard.

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11th Jan 2018 19:17

Whilst most 'fear' is seen as immediate and short term wages/economic loss/risk, the media rarely highlight the bigger risk of being engulfed in the 'ever closer union' aspects.

These are far greater long term to all in UK.

A fundamental FREEDOM issue divides this.

In particular the northern EU countries (Protestant thinkers of old since Reformation) with Brussels perceived as the new 'Rome' (Vatican City).
Most EU seniors are linked to the Jesuits who are instructed by the Vatican, which thinks in Centuries would like to regain power and control even 500 years later....they, the Elite as ever do not envisage economic success as a criteria for life, hence many poor people in the world...

England expanded by seapower and reach, sail at 10 knots in 24 hours beats
an army on foot, as Napoleon learnt....!

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11th Jan 2018 19:17

Whilst most 'fear' is seen as immediate and short term wages/economic loss/risk, the media rarely highlight the bigger risk of being engulfed in the 'ever closer union' aspects.

These are far greater long term to all in UK.

A fundamental FREEDOM issue divides this.

In particular the northern EU countries (Protestant thinkers of old since Reformation) with Brussels perceived as the new 'Rome' (Vatican City).
Most EU seniors are linked to the Jesuits who are instructed by the Vatican, which thinks in Centuries would like to regain power and control even 500 years later....they, the Elite as ever do not envisage economic success as a criteria for life, hence many poor people in the world...

England expanded by seapower and reach, sail at 10 knots in 24 hours beats
an army on foot, as Napoleon learnt....!

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to mehmetali
12th Jan 2018 08:54

It's not only the UK that will suffer under a federal Europe. Europe is so diverse that to try and amalgamate everything would be a total disaster. The US only just survive and they've been at it for years.
Of course there should be a "coming together". EFTA was brilliant (with a few anomalies). Free movement of workers, great but with anything that vast you have to have flexibility built in which the EU can't seem to get their head round. In todays world black and white just doesn't exist. A classic example is gender. So EU let's have a system that suits the peoples aspirations not the politicians'.

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15th Jan 2018 10:41

I suggest the phrase of the year is "regulatory equivalence".

Currently we play by the same rules as other EU members. And we recognise the ECJ as the court of settlements for contractual disputes.

If as a result of Brexit, Britain decides to diverge from EU standards and goes its own way or adopts some other standards from elsewhere, then there is the problem of equivalence. And there is also a problem of who is the court of settlement of disputes.

The EU doesn't have to do a "reasonable deal" with Britain because it is Britain that has decided to leave. The EU has its own set of standards accepted and used by member states. It has no reason to dilute or bend those standards for 3rd party countries, which Britain is due to become.

I suggest the most likely deal, if there is one, will be a third country deal like that of Canada and South Korea covering mainly goods. There will be no "plus, plus, plus" as the EU has no incentive to grant that.

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09th Feb 2018 16:32

Uncertaintly always has a negative effect on business and the economy no matter whatever the cause. With Brexit its a question of accepted the will of the people. Divorces are expensive things but if the partners in a marriage no longer wish to remain together, then so be it..

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