Brexit drags CFO confidence to lowest level since 2007

CONFIDENCE among the CFOs of the UK’s largest companies has taken a sharp fall following the referendum on the UK’s membership of the EU, according to Deloitte’s latest CFO Survey.

The survey of 130 CFOs of FTSE 350 and other large private companies shows significant downturns in corporate optimism and risk appetite. CFOs are shifting to defensive balance sheet strategies and becoming more cautious of all forms of spending.

The survey, which ran from 28 June to 11 July, found that 95% of CFOs say the level of uncertainty facing their business is above normal, high or very high, up from the first quarter and returning to levels last seen in the euro crisis in 2012.

Three quarters of CFOs said that they are less optimistic about the financial prospects for their company, the highest level registered since Deloitte’s survey began in 2007 and higher than during the fallout from the Lehman collapse in 2008.

Just 8% of CFOs say now is a good time to take risk onto their balance sheet, down from 25% in the last quarter and its lowest level since 2009, while 63% of CFOs say they expect revenues at their firms to decrease in the next year.

One in five CFOs expect their firms to shrink capital spending in the next year, with 83% forecasting a slowdown in hiring. Both are the highest level recorded by Deloitte’s survey, The proportion forecasting a cut in discretionary spending is the highest since the end 2011.

For the first time since the first quarter of 2015, the top two balance sheet priorities for major UK corporates are defensive. Half of CFOs say reducing costs is a strong priority for the coming 12 months, with 41% looking to increase cash flow.

Ian Stewart, chief economist at Deloitte, said: “CFOs do not seem to be waiting for growth to slow before adjusting direction. There has been a marked shift to more defensive balance sheet strategies in the wake of the referendum, with a focus on reducing costs, building up cash flow and caution on all forms of spending.

“Corporate willingness to take risk has seen one its largest ever declines while the outlook for capital spending, hiring and discretionary spending is at levels last seen just before the so-called “double dip” slowdown of 2012.

“Perceptions of uncertainty have soared to levels last associated with the euro crisis five years ago. The spike in uncertainty has had a toxic effect on business sentiment with optimism dropping to the lowest level since our survey started in 2007, lower, even, than in the wake of the failure of Lehman in late 2008.

“However, the immediate scale of post referendum shock has not been of the same scale as 2008. Sterling has fallen faster but UK equities have proved more resilient. Consumer confidence in July recorded its sharpest monthly fall in almost 22 years, but it remains much stronger than it was post-Lehman.”