Deloitte's Q1 CFO Survey - Defensive strategies dominate for UK CFOs

Defensive strategies dominate for UK CFOs  

• While optimism remains above the lows seen in the pandemic, UK CFOs have assumed their most defensive strategy stance since early 2020;
• Geopolitics continues to be rated as the top risk to business by finance leaders, and is assigned its highest risk rating since early 2022;
• Risk appetite among CFOs declined in the first quarter, with just 12% reporting that now is a good time to take greater risk onto their balance sheet;
• Finance leaders rate tariffs, sanctions and restrictions to market access as the most prominent channel through which geopolitics could impact their businesses;

Deloitte’s latest survey of UK Chief Financial Officers (CFOs) closed on 31 March - two days before the US announced new tariffs - and amid increasing speculation about upcoming changes to US trade policy.

According to the survey, CFOs of the UK’s largest businesses are assuming their most defensive strategy stance since the early days of the pandemic, in the face of rising operating costs and significant uncertainty over tariffs. Finance leaders have sharpened their focus on cost control with 63% saying it is a strong priority for their business, the second-highest reading on record.¹

Alongside this, a net 14%⁴ of CFOs reported feeling more pessimistic about the prospects of their business than three months ago. However, optimism remains well above the lows seen during the pandemic in 2020 or after the invasion of Ukraine in 2022.

In addition, the findings show that - even before the official announcement on broad tariffs made in the last fortnight - finance chiefs’ concern over geopolitical risk and protectionism² had risen to its highest level since Russia’s invasion of Ukraine, at a weighted average rating of 74.³ Concerns over weakness or volatility in US growth (rated at a weighted average of 60) also rose to the highest level since we began asking the question nearly five years ago.

Risk appetite among CFOs declined in the first quarter, with just 12% reporting that now is a good time to take greater risk onto their balance sheet. This is less than half the long-term average of 25%.

Amanda Tickel, head of tax and trade policy at Deloitte UK, said: “Given widespread speculation over the scale and scope of US tariff rises during the survey period, it is unsurprising that CFOs reported elevated levels of uncertainty. Previous periods of uncertainty over future terms of trade have resulted in a prolonged squeeze on investment.

“This is still a rapidly evolving environment, and businesses will need to be proactive in mitigating the effects of tariffs, however, they will be unlikely to actually reconfigure their global supply chains or production until they see the results of negotiations or responses by other nations. Right now, businesses will be modelling the potential impacts, assessing whether their customs operations are prepared and ensuring they have as much flexibility as possible to source and supply. Being across every element of a product’s journey from its origin to its value, to its tariff classification, will stand businesses in good stead wherever the tariffs finally land.”

Cost pressures persist

A net 63% of finance leaders believe that operating costs will continue to increase over the next 12 months, while a net 35% expect to see an increase in revenues. There is less certainty that revenues will continue to increase however, with a majority of finance chiefs (net 35%) expecting a decline in operating margins.

Inflation expectations increased for the third consecutive quarter, to 3.1% over the next year and 2.6% over the subsequent year, up from 2.5% and 2.4% respectively in the previous edition of the survey. A year ago, UK finance chiefs expected that the Bank Rate would currently stand at 4.25% rather than the 4.5% it is now, and they now expect that rates will fall to 4.0% in a year’s time.

Cooling in the labour market

Finance leaders see a cooling labour market in the UK, as the proportion of businesses reporting greater than mild recruitment difficulties has fallen to 29%, down from 86% three years ago. Looking ahead to the next 12 months, CFOs are expecting to see the sharpest decline in corporate hiring since Q3 2020, and expect wage growth to slow from 3.6% to 3%.

Along with the reduction in corporate hiring, a net 30% of finance chiefs expect UK corporate capital expenditure to decline over the next 12 months and a net 58% expect to see a decline in discretionary spending.

Consequences of geopolitical developments

This quarter the survey repeated a set of questions asked at the same time last year (Q1 2024), on how finance leaders see geopolitical risks impacting their own business. CFOs rate a rise in tariffs, sanctions, restrictions to market access or other restrictions to business operations as the most prominent channel through which geopolitics could impact their businesses, with 46% reporting that it is a significant concern for their own business. This is up from 15% last year, reflecting ongoing global events.

Ian Stewart, chief economist at Deloitte UK, said: “Although large UK businesses are preparing for turbulence, levels of pessimism have not fallen to the low that was seen during the pandemic. Finance leaders have a continued focus on costs and hiring, and the prioritisation of more defensive strategies is standard practice amongst business leaders during challenging times.”

-Ends-   

Note to editors   

¹ The highest reading was recorded five years prior, at the start of the pandemic.

²  The 12 risk areas tracked in the survey are:   

- Rising geopolitical risks worldwide including greater protectionism
- Poor productivity/weak competitiveness in the UK economy  
- Higher energy prices or disruption to energy supplies  
- Persistent labour shortages  
- The risk of higher inflation and/or a bubble in housing and other real and financial assets   
- The prospect of further rate rises and a general tightening of monetary conditions in the UK and US  
- Long-term effects of climate change   
- Economic weakness and/or volatility in US growth  
- Medium-term supply chain disruption   
- Deflation and economic weakness in the euro area, and the possibility of a renewed euro crisis   
- Effects of Brexit/deterioration in UK-EU relations  
- Weakness and/or volatility in emerging markets  

³  Weighted average ratings on a scale of 0-100 where 0 stands for no risk and 100 stands for the highest possible risk.

⁴  A number of the Deloitte CFO survey findings are presented in terms of net balances – standard practice with surveys conducted by many central banks. In the case of the CFO optimism figures, CFOs were asked whether they are now more or less optimistic about the financial prospects for their firms than they were three months ago (or if their optimism remains unchanged). The net balance (net -14%) was then computed by subtracting the percentage of CFOs less optimistic from the percentage more optimistic. Net balances can be negative or positive. In the case of CFO optimism, a negative reading implies a greater proportion of CFOs are less rather than more optimistic about their firm’s prospects. Throughout this press release and the survey report, net percentages indicate where net balances are used to present findings. 

About the survey    

Conducted between 18th and 31st March 2025 (two days before the US president announced significant new tariffs), the Q1 2025 Survey is the 71st quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. Overall, 67 CFOs participated, including the CFOs of 14 FTSE 100 and 20 FTSE 250 companies. The rest were CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 42 UK-listed companies surveyed is £427 billion, or approximately 18% of the UK quoted equity market.

The Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing.   

For copies of previous CFO surveys, please see here.