Deloitte’s latest survey of UK chief financial officers, released overnight, shines light on the plans of Britain’s largest corporates as the economy reopens. The full report is available at: https://www2.deloitte.com/uk/en/pages/finance/articles/deloitte-cfo-survey.html 

The steep rise in COVID cases before and during the survey period of 16–29 June appears to have had little effect on business sentiment. CFOs’ perceptions of external uncertainty have dropped below the average of the last five turbulent years and businesses have tacked away from the defensive strategies that helped them through the downturn.

Cost reduction was by far the top priority for UK CFOs last year. Now the focus is on growth, with 77% of CFOs expecting to increase hiring and 71% planning to increase investment in the next 12 months. Investment in technology features prominently. M&A seems set to play an outsize role in reshaping the business landscape, with CFOs rating expansion through acquisition a higher priority than at any time in ten years.

Brexit and, since spring 2020, the pandemic, have been the dominant concerns for CFOs in the last five years. But CFOs are starting to worry about a new problem, of excessive growth and inflation. COVID, rising inflation and climate change are ranked as almost equal risks in the last survey, with COVID topping the list with the narrowest of margins.

The bounce back from the recession has fuelled commodity prices and supply bottlenecks, pushing inflation higher in the US, UK and euro area. Britain’s inflation rate rose from 0.7% at the time of the last CFO survey in March to 2.1% in May. CFOs believe this has further to run and anticipate that over the next 12 months their own operating costs will rise at the fastest rate in ten years.

Many businesses are likely to face exceptionally strong demand and sharply higher input costs over the coming months. With cost control taking a back seat improving productivity offers the most obvious way for businesses to protect margins.

Expansion is the order of the day for CFOs. Yet this is no normal economic cycle. Years of normal growth are likely to be compressed into a few months. The pandemic, like all major shocks, will reshape the economy. In this CFOs see an opportunity – to use investment and business change to jolt productivity onto a higher path. Eight out of ten CFOs believe UK productivity will run higher in the wake of the pandemic. That offers hope of a broader and more convincing recovery than that which followed the global financial crisis.

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