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UK CFOs cautious on 2016

By Deloitte | 7th January 2016

UK CFOs cautious on 2016

Risk Appetite is waning as CFOs advise caution moving into 2016 according to Deloitte's latest survey of UK CFOs.

The latest Deloitte survey of UK Chief Financial Officers, released this morning, highlights the risks and opportunities facing business in 2016.

The big message is that UK corporates have become much more cautious. The fourth quarter survey, which took place in the first half of December, shows CFO confidence dropping to its lowest level since the euro area was in recession, in mid-2012.

Risk appetite has continued to wane, with just 37% of CFOs saying now is a good time to take risk onto their balance sheet, half the level seen at the peak in late 2014.

CFOs are positive about the UK and, especially, the US economies, but are gloomy about prospects for emerging markets and the euro area. (I think the pessimism on the euro area is overdone given that the hard data show a continued, if unspectacular recovery in the region).

CFOs are becoming more defensive. We are seeing a bigger focus on cost reduction, which is now the number one balance sheet priority. CFOs are placing greater weight on other defensive strategies including increasing cash flow, disposing of assets and cutting leverage.

A 2016 referendum on membership of the European Union is a real possibility and one that would add to the uncertainties facing business. A clear majority of CFOs favour staying in the EU, but those expressing unqualified support for membership has fallen from 74% in the second quarter of 2015 to 62% in the latest survey.

Only 6% of CFOs favour leaving the EU. But 32% are undecided, with most of them saying they would make up their mind when the results of the PM's renegotiation of UK membership are known. This finding suggests that the outcome of the renegotiation could significantly affect business attitudes to the EU.

The narrowing of the lead for the "ins" among CFOs coincides with a more marked decline in public support for EU membership (The average lead for the "ins" over the "outs" in public opinion polls has dropped from +18 to +6 percentage points in the last 6 months).

Greater defensiveness on the part of the corporate sector points to slower growth in hiring and capex over coming months. It also suggests that, with the public sector still locked into austerity, the consumer sector may need to do more of the "heavy lifting" in terms of driving UK growth. Softening activity in the corporate sector provides another reason why the Bank of England is unlikely to hurry and follow the lead of the US Fed by raising UK interest rates.

This is the 34th quarterly UK CFO survey. 137 CFOs, including 79 at FTSE350 companies, took part. The full report is available at: