The second quarter Deloitte survey of UK Chief Financial Officers released today reveals growing concerns about Brexit and a marked shift towards more defensive balance sheet strategies.
The boost to CFO spirits seen in the last Survey, carried out in March, as a result of the announcement of the Brexit transition deal, has been short-lived.
Three-quarters of CFOs expect Brexit to lead to a deterioration in the business environment in the long term, the highest proportion since we asked this question in the immediate aftermath of the referendum in late June 2016. CFOs once again rank Brexit as the top risk facing their business, with concerns about weak UK demand in second place. The global backdrop has become more challenging too with CFOs increasingly concerned about protectionism and slowing euro area activity.
CFOs are reacting to a weaker domestic outlook with a sharper focus on cost control and building up cash. UK corporates are placing as much emphasis on defensive balance sheet strategies as they did during the height of the euro crisis and immediately after the euro area referendum.
The effects of home-grown risks are having a particularly marked effect on domestically focussed businesses. CFOs in businesses that derive in excess of 70% of revenues domestically are running their balance sheets much more defensively than those businesses that make most of their revenues outside the UK.
Wage pressures seem to be building. 44% of CFOs report that recruitment difficulties or skills shortages have risen in the last three months, up from 31% in the first quarter.
Business sentiment continues to be buffeted by the news on Brexit. The mid-year position of the UK corporate sector is defensive and watchful. How that changes over the rest of this year will be heavily dependent on the unfolding negotiations between the UK and the EU.
To read the full report and download the survey data please click on the link below: