Low growth stymies CFOs' spending plans

THE UK's leading finance directors enter 2013 more optimistic than a year ago but weak growth is curtailing plans to expand, according to a survey by Deloitte.

Concerns about low growth and economic uncertainty, rather than access to capital, are deterring chief financial officers from spending cash. Instead, their priorities are cutting costs and increasing cash flow.

Deloitte's survey of CFOs from 112 leading companies, including 36 in the FTSE 100 and 38 FTSE 250 businesses, found fears of a return to recession or a euro breakup have eased and that company-specific worries such as margins, cash flow and credit availability have receded.

"The emerging picture is of businesses which are constrained by low growth and uncertainty rather than weakness in business models or access to capital," said Ian Stewart, chief UK economist at Deloitte.

"Despite confidence fluctuating with the ups and downs in economic prospects, we've seen a long-term drift to greater defensiveness by corporates, not for want of capital but rather for scarcity of opportunity."

The majority of finance directors (81%) think the Bank of England is doing a good job and are also positive about the UK's labour market policies. In contrast, areas of greatest concern relate to micro issues, such as regulation, infrastructure, energy and immigration policy, rather than macroeconomic policy.

Stewart concludes: "While CFO sentiment yo-yoed in 2012, largely in response to the ups and down of the eurozone, corporate strategies have become steadily more defensive over the last year. By and large, big corporates do have the firepower to hire and invest. However, five years on from the onset of the financial crisis, the missing ingredient, and the one which holds the key to corporate behaviour, is confidence about future growth."