Cuts in interest base rates have failed to improve the supply of credit or to reduce the cost of debt available, even for larger UK companies, according to the latest Deloitte CFO Survey. Deloitte’s findings for the first quarter of 2008 show that 73% of corporates said credit was costly in March, up from 64% in December. 62% reported that credit is difficult to obtain, up from 55% in December.

Margaret Ewing, Deloitte partner and vice chairman, commented: “Despite reductions in base rates in December and in February, corporates, like consumers, are facing tougher credit conditions and, so far, lower base rates would appear not to be easing the situation.”

The Deloitte survey indicates that CFOs believe the credit crunch has at least 6 months to run, with 21% seeing credit conditions improving in the fourth quarter of this year and 50% expecting an improvement in the first half of 2009.

However, with an anticipated improvement in credit conditions by mid 2009, CFOs remain fairly positive about the longer term outlook for credit. Most CFOs plan to raise credit (either new or refinancing) over the next 12 months and more companies in the survey are planning to increase gearing over the next year than to reduce it.

The survey also highlights that companies are expecting to respond to tougher market conditions by cutting back on expenditure. 

65% of those surveyed said they were likely to cut discretionary spending, such as corporate travel and entertainment.  55% are likely to curtail future hiring and 38% are considering reducing their current employment levels. Investment is also being targeted, with 38% of CFOs indicating they are likely to reduce capital expenditure.  But CFOs are determined to protect dividends, with only 3% indicating that they are likely to reduce dividend payments.

Commenting on the findings Ian Stewart, Director of Deloitte Research, said: “The survey shows how stress in financial markets is likely to feed through the corporate sector and into the economy. Cost control is a priority for corporates and this spells a squeeze on discretionary spending, jobs and investment.”

Despite the challenges, 82% of CFOs see new opportunities in the current environment.  UK equities are now seen as undervalued by a majority of CFOs and this has bolstered sentiment about corporate mergers and acquisitions. On balance CFOs think the credit crunch will make it easier for corporates to undertake M&A, with lower valuations and weaker competition from private equity as supportive factors.

Mr Stewart noted: “In aggregate the UK corporate sector is cash rich and profitable – which puts companies in a good position to capitalise on lower asset values by undertaking acquisitions.”

For further information, download our report The Deloitte CFO Survey: Benchmarking Corporate Financial Attitudes. (PDF, 543KB)

Notes to editors:

About the Deloitte CFO Survey
This is the third quarterly Deloitte survey of Chief Financial Officers and Group Finance Directors of major UK companies. The Deloitte CFO Survey is the only survey of major corporate users of capital which gauges attitudes to valuations, risk and financing. The first quarter 2008 survey took place between 7th and 31st March 2008. 34 CFOs participated representing 30 FTSE350 companies, two private companies and two small cap companies. The combined market capitalisation of the firms surveyed is approaching £100 billion.
 
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other's acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.