Julia Irvine 4 Feb 2019 04:25pm

UK CFOs batten down the Brexit hatches

In the face of Brexit uncertainty, UK CFOs have adopted their most defensive mix of balance sheet strategies in nine years, Deloitte’s latest quarterly survey reveals

Risk appetite has fallen to its lowest since 2009 when the financial crisis was at its worst, while expectations about revenue growth are at their lowest level since the EU referendum in 2016.

“With the UK’s growth prospects heavily dependent on the so-far-uncertain nature of its exit from the EU, corporates are cutting back on capital expenditure and hiring, focusing instead on cost reduction,” said Deloitte chief economist Ian Stewart.

“Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control. Businesses seem to be increasingly pricing in a worst-case outcome. Anything better, including a delay or a deal, could deliver a Brexit bounce in sentiment.”

The Q4 survey found that around 80% of CFOs think that leaving the EU will have an adverse impact on the long-term business environment. Brexit will also negatively affect their hiring and spending decisions over the next three years - nearly half (49%) warn that their capital expenditure will slow.

Cost control will be the order of day, particularly over the next 12 months – 56% said it would be a “strong priority”, up from 53% in Q3. CFOs also have increasing cash flow in their sights (47%) although the number citing this as a priority is slightly down from Q3 (48%).

David Sproul, Deloitte’s CEO for North West Europe, thinks this “hunkering down mentality” is understandable in the circumstances, demonstrating as it does “that business urgently needs clarity about the UK’s future relationship with the EU”.

“Unless a favourable deal is agreed,” he warns, “it seems likely that this current lack of appetite for investment or recruitment will continue.”

The survey was carried out last month and covers the views of 110 CFOs of listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 75 UK-listed companies is £390bn (16% of the UK quoted equity market).