The fourth quarter Deloitte survey of UK Chief Financial Officers is published this morning. This is the 30th CFO survey; 119 CFOs, including 32 at FTSE100 companies, took part in the survey between 29th November and 16th December. The full report is available at:
The survey paints a picture of the risks and opportunities confronting major UK corporates in 2015. The big message is that CFOs see a growing divide between good UK fundamentals on the one hand and concerns about UK politics and external macro risks on the other.
The slowdown in emerging markets, euro-stagnation and the drop in the oil price have contributed to a weakening in CFO risk appetite and business confidence. 56% of CFOs say now is a good time to take risk onto their balance sheets, down from a record reading of 71% in the third quarter, although still well above the long-term average.
The biggest – and a growing – concern for CFOs is May's General Election. This easily eclipses concerns about the euro area and emerging markets.
The good news is that CFOs think UK economic fundamentals are pretty sound. CFOs believe that the long squeeze on the UK consumer is over and expect real wages to rise in 2015 for the first time in six years. They are bullish about prospects for investment and expect to increase UK capex in their own businesses by 9.0% in 2015, following growth of about 8.0% in 2014. CFOs, unlike policymakers, do not think the UK has a productivity problem. And they rate UK economic (but not political) risks as low down the list of things to worry about.
This all points to slower, but decent UK growth in 2015, with domestic demand driving the UK economy.
Over the coming months corporate sentiment is likely to be buffeted by the flow of news from overseas and developments on domestic politics. I was struck by how CFOs who filled in the survey later, in mid-December, after the equity market had dropped sharply, reported much lower levels of risk appetite than those answering the survey at the end of November. (It was a similar story last year at the time of the Scottish independence referendum. CFOs who completed the survey before the results of the referendum were in rated external economic and financial uncertainty as being twice as high as those who responded after the results were known).
UK corporates see UK political developments as a significant risk factor this year. The British Chambers of Commerce picked up on this theme last week when it warned political leaders against what it described as "tawdry politics" which could dent business confidence.
So, overall there's good news in the survey on wages and investment – and a real confidence in UK prospects. But this is tempered by worries about external risks and domestic politics.
The big issue is whether the UK will be able to shrug off the effects of such uncertainties this year, or, as in 2012, during the euro crisis, weakness overseas will drag down UK growth. The UK economy has greater momentum today than in 2012. My hunch is that the pace of UK activity will moderate in 2015, but not dramatically.