Frances Ball 15 Apr 2019 12:54pm

Brexit concerns at all-time high among UK CFOs

A record 81% of UK CFOs expect that the long-term business environment will be made worse by leaving the EU

This is the highest level of concern among CFOs since the 2016 referendum, according to Deloitte, which gathered the data for its quarterly CFO Survey.

Of the 89 CFOs who took part in the survey 48 were from FTSE 100 and FTSE 250 companies. Combined, the total market value of the companies that participated is £377bn – around 15% of the UK quoted equity market.

Holding the survey between 26 March and 7 April was significant, Deloitte pointed out, as this two-week period opened with the announcement of the first Brexit delay and saw the House of Commons fail to agree to a new plan.

“Put mildly, it’s been a turbulent few weeks,” said Ian Steward, chief economist at Deloitte, “and there’s been little change in confidence and risk appetite among CFOs, as many priced in a tougher environment at the start of the year. They went into March braced for tough times and the latest round of Brexit uncertainties have not materially changed that picture.

“When expectations are already low, it’s harder to be disappointed.”

The survey showed that 49% of CFOs expect to reduce their own capital expenditure, and 22% to cut M&A, as a result of Brexit.

Only 9% of the respondents said now was a good time to take greater risk onto their balance sheets – although this has increased from 7% last quarter.

In the first quarter of 2018, only 18% of CFOs expected to see a decline in revenue in the following year. As the latest survey shows, that figure now stands at half of all CFOs.

Poor economic headwinds are compounded by rising operating costs, which 79% of CFOs expect to see a rise in next year.

Access to credit is also a worry for some. Two years ago, only 4% of CFOs reported that credit was hard to get: as pricing and availability have worsened, 18% of CFOs now say the same.

In the face of a tough economic outlook, Deloitte’s survey suggests that CFOs are putting an increasingly strong emphasis on cash accumulation. Over half see it as a priority for the next year. Data from the Office for National Statistics (ONS) from the end of last year painted a similar picture, revealing that UK corporates held £747bn of cash – equivalent to 35% of GDP.

David Sproul, senior partner and chief executive of Deloitte North West Europe, said, “Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets.

“They appear to be battening down hatches for tougher times ahead. While last week’s announcement on a further deferral of the UK’s departure from the EU removes an immediate unknown, the continuation of uncertainty is causing much frustration for UK businesses. As well as stashing cash, many continue to delay investment. Businesses remain in a period of further limbo.”

Last week, EU leaders granted the UK a six-month extension, taking the Brexit deadline to 31 October.