Brexit is the top business concern for chief financial officers (CFOs), who are planning on cost cutting and balance sheet retrenchment in response, according to research from Deloitte
The firm’s survey of 124 CFOs of FTSE 350 and other large private companies ask respondents to rate, on a scale of 0-100, what they see as the biggest risks to their business. The effects of Brexit rated highest (57) followed by weak demand in the UK (54, up from 46 in Q2). Concerns about poor productivity in the UK also saw a large increase over the past quarter, 46 up from 36.
Other risks cited by CFOs also included, deflation and economic weakness in the euro area (50), the prospect of tightening monetary conditions (47) and the US presidential election (45).
When asked how they expect Brexit to impact their spending and hiring decisions over the next three years, 40% of CFOs said capital expenditure will decrease, 46% expect hiring to slow and 55% expect discretionary spending to decrease.
Overall, 65% say that the long term business environment will be worse when the UK leaves the EU, down from 68% in Q2.
Ian Stewart, chief economist at Deloitte, said: ‘Brexit tops the list of CFOs’ risks and concerns about UK growth and competitiveness have soared in the past six months. These concerns are weighing on corporate risk appetite with low levels of risk appetite a weaker outlook for investment and hiring.
‘CFOs remain concerned about the long-term impact of Brexit and two-thirds believe it will lead to a deterioration in the UK business environment.’
Most (88%) of CFOs reported the level of uncertainty currently facing their business is above normal, high or very high, down from 92% in Q2 but still the second highest since Q4 2012.
In addition, 82% say now is a bad time to take risk onto their balance sheet, down from 95% in Q2 but still the second highest level since Q4 2011.
Defensive balance sheet measures continue to dominate corporate plans. The top priority is cost reduction, with 47% of CFOs rating reducing costs as a strong priority, unchanged from Q2. Increasing cash flow is rated as the second highest priority by 42%, while 39% plan to introduce new products and services, up from 27% in Q2.
Despite improving over the last quarter, 58% of CFOs expect UK corporates to cut capital spending in the next 12 months.
