News & Blog

Read the latest business news, blogs and thought leadership articles from our members, as well as updates on the Edinburgh Chamber of Commerce's work in the city.

News & Blog

Corporate optimism dips for UK CFOs

Posted: 18th July 2023
  • Inflationary pressure and rising rate expectations are weighing on corporate optimism;
  • CFOs are responding with a sharper focus on cost reduction and cash control, as the cost of credit hits a 14-year high;
  • There are early signs of cooling in the labour market, with CFOs signalling a continued easing in recruitment difficulties and expecting a slowdown in wage growth;
  • Majority of CFOs expect employees to spend more time in the office in future.

Confidence among the finance leaders of the UK’s largest firms has dipped in the second quarter, partially unwinding the sharp rise in sentiment seen in Q1 2023, according to Deloitte’s UK CFO Survey Q2 2023. A net1 -10% of CFOs are more optimistic about their firm’s financial prospects now compared to three months ago, down from a net 25% in Q1 2023.

With growing concerns over persistent price pressures and the potential implications of further interest rate rises, CFO perceptions of uncertainty have risen. Almost half of respondents (45%) now rate the levels of external financial and economic uncertainty facing their businesses as high or very high, up from 39% in Q1 2023.

Meanwhile tight monetary policy is seen by CFOs as the top threat to their business, outweighing the concerns around geopolitics and energy prices that have dominated for the last two years. With recruitment difficulties and supply chain pressures easing significantly since the start of the year, labour and supply shortages have slid down the CFO risk list.2

Conducted between 15 June and 27 June 2023, Deloitte’s latest quarterly CFO Survey captures sentiment amongst the UK’s largest businesses. A total of 69 CFOs participated, including the CFOs of 13 FTSE 100 and 21 FTSE 250 companies. The combined market value of the 37 UK-listed companies surveyed is £317bn, or approximately 13% of the UK quoted equity market.

Corporates expect persistently high inflation

The three months following the last survey have been marked by a series of unexpectedly high readings for UK inflation and earnings growth. These numbers appear to signal a more prolonged period of high inflation, with CFO expectations for inflation in two years’ time rising from 2.9% in Q1 2023 to 3.6% in Q2 2023.

CFOs have raised their interest rate expectations and expect the Bank of England’s base rate to be at 4.5% in a year’s time, up from an expected 3.75% in Q1 2023. They also report tighter credit conditions, with a net1 86% rating new credit as costly. On this measure, the cost of credit is at a 14-year peak – its highest level since the credit crunch.

Focus on reducing costs

CFOs have sharpened their focus on cost reduction and increasing cash flow. They are now placing greater emphasis on these defensive strategies than their long-term average, with 55% of CFOs rating corporate cost reduction and 46% of CFOs rating increasing cash flow as a strong priority for their business in the next 12 months.

Ian Stewart, chief economist at Deloitte, said: “The burst of business optimism seen in the spring has faded under the weight of inflation and rising interest rates. Corporates have responded with an increasing focus on cost reduction and cash control.

“Businesses have negotiated a series of major challenges in the last four years, including the UK’s departure from the EU, the pandemic and supply shortages. The legacy of those earlier shocks, in the form of inflation and high interest rates, is now the central challenge.”

Labour market cooling

The survey finds some early signs of a softening labour market, with a net1 43% of CFOs expecting UK corporates to decrease hiring over the next 12 months.

Finance leaders also report a continued easing of recruitment difficulties and labour shortages, with 13% rating recruitment difficulties faced over the last three months as ‘significant’ or ‘severe’, down from 18% in Q1 2023. They expect some further improvement over the next 12 months and ‘significant’ or ‘severe’ recruitment difficulties to ease to negligible levels in two years’ time.

Consistent with this softening, CFOs expect a slowdown in wage growth in their own businesses from 6.3% over the past 12 months to 4.7% in the next year.

Views on hybrid working

When asked about hybrid working, CFOs estimate that employees in their organisations who can work remotely split their time evenly between the office and home, working on average 2.6 days from the office per week. CFOs say they would prefer this to rise to approximately three and a half days in the office every week.

More than half (56%) believe that employees will be spending more time in the office in two years’ time, while 38% think the current balance will continue, and only 6% expect to see a further reduction in time spent in the office.

Ian Stewart said: “Three years on from the start of the pandemic, CFOs say they would like to see employees spend rather more time in the office. Most CFOs expect the balance between work and home to shift over the next two years, with employees spending almost an extra day on average in the office.”

Business Comment

Business Comment is the Edinburgh Chamber of Commerce’s bi-monthly magazine. It provides insight on Edinburgh’s vibrant business community, with features on the city’s key sectors, interviews with leading figures and news on new business developments in the capital.
Read more here