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Deloitte's Q3 CFO survey - Debt falls out of favour with UK finance chiefs

16 October 2023
  • CFOs rate bank borrowing as less attractive as a source of financing than at any time since at least 2007, with a growing focus on debt reduction;
  • Despite uncertainties, business confidence is running above average levels;
  • Concerns linger about the outlook for inflation;
  • CFOs see government policy as the biggest driver of their own response to climate change and are more optimistic about the prospect of AI.

Against a backdrop of elevated interest rates, Deloitte’s Q3 CFO survey shows finance leaders continuing to focus on defensive balance sheet strategies. UK CFOs now rate bank borrowing as being more unattractive as a source of corporate financing than at any time since the survey began, with a net -37%1 rating it as attractive.

Despite this, levels of business confidence rose in the third quarter and are running slightly above average, with a net 9% feeling more optimistic about the financial prospects for their company than three months ago.

Conducted between 19 September and 2 October 2023, the survey captures sentiment amongst the UK’s largest businesses. A total of 70 CFOs participated, including the CFOs of 13 FTSE 100 and 26 FTSE 250 companies. The combined market value of the 43 UK-listed companies surveyed is £345bn, or approximately 14% of the UK quoted equity market.

Sources of financing

CFOs’ attitudes to financing their businesses have shifted and they now see equity financing (net -10%) as being more attractive than debt financing, either in the form of bank borrowing (net -37%) or corporate bond issuance (net -39%). Between 2009 and the start of this year, finance chiefs have rated equity ahead of both bank borrowing and corporate bond issuance in only one quarter (Q2 2009).

CFOs have also become more cautious about taking on debt, with a net balance of 15% seeing UK corporates’ balance sheets as being overleveraged. Debt reduction is rated as a strong priority at 30%, the highest level recorded outside of the exceptional circumstances during the early stages of the pandemic.

Ian Stewart, chief economist at Deloitte, said: “Higher interest rates have flipped a decade-old consensus which was previously in favour of debt finance. This shift in thinking means that equity finance, which has been out of favour for years, is now seen as being more attractive than debt finance.

“Finance leaders are preparing for a period of high interest rates, with predicted rates falling only slightly over the next year. If realised, this would represent a period of tight monetary policy, the likes of which has not been seen since 2008.”

Credit squeeze continues

The survey shows that availability of credit saw a modest decline this quarter to a net -12%, but remains significantly higher than during the global financial crisis. The cost of new credit for corporates remains close to the highest level seen since the global financial crisis, at a net 84%.

Cost reduction (54%) and increasing cash flow (43%) continue to top the corporate priority list for finance chiefs, while they reported that they are making greater efforts to reduce leverage, with 30% rating it as a strong priority.

CFOs, on average, see the Bank of England’s base rate falling only slightly from its current level of 5.25% to 4.75% in a year’s time. This is consistent with market expectations that the UK is at or close to the top of the interest rate cycle.

Outlook for inflation

Geopolitical risk,2 higher inflation, and the prospect of further interest rate rises continue to be seen as the most significant sources of external risk facing businesses,3 whilst concerns around labour shortages and disruption to energy supplies have eased. CFOs ranked the risk of higher inflation at 58,4 the second highest risk to business.

Although inflation may have peaked for this cycle, CFOs expect inflation to be running at 3.1% in two years’ time, above the Bank of England’s expectation. They also think wage growth is likely to slow over the next 12 months from 6.2% to 4.3%.

Firms’ operating costs have risen in the last 12 months, and 84% expect them to continue to increase in the next year. Reducing cost continues to be rated the highest corporate priority in the next 12 months, with 54% rating it as a strong priority for their business.

Opportunities in climate transition and AI

CFOs view government policy as the biggest driver of their firm’s own response to climate change (with a rating of 47)5 followed closely by customers (46) and employees (42).

58% of CFOs believe their businesses will face significant or wholesale change in the move to a low-carbon economy in the next 10 years, with only 4% seeing little or no change. The vast majority (82%) continue to see opportunities for their own businesses in the transition to a low-carbon economy.

Finally, most CFOs (54%) have become more optimistic that AI can deliver improvements to business performance. 86% reported that their understanding of AI and its uses has increased.

Ian Stewart said: “New technology and the transition to net zero will reshape the economy and play a major role in driving growth. Finance leaders believe that the application of artificial intelligence will lift productivity and that the energy transition will create significant business change and new business opportunities.”

Note to editors

1A 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 net % of CFOs who rate bank borrowing as a very or somewhat attractive source of funding for UK corporates, the net balance (net -37%) reflects that 56% of CFOs think it is unattractive against 19% who think it is attractive. Throughout this press release and the survey report, net percentages are provided where net balances have been used to present findings.

2The survey closed before the terrorist attacks and escalation of conflict in Israel and Gaza on 7 October.

3The 13 risk areas tracked in the survey are:

  • Higher energy prices or disruption to energy supplies
  • Rising geopolitical risks worldwide including the war in Ukraine
  • The prospect of further rate rises and a general tightening of monetary conditions in the UK and US
  • The risk of higher inflation and/or a bubble in housing and other real and financial assets
  • Persistent labour shortages
  • Poor productivity/weak competitiveness in the UK economy
  • Long-term effects of climate change
  • Medium-term supply chain disruption
  • Effects of Brexit/deterioration in UK-EU relations
  • Economic weakness and/or volatility in US growth
  • Deflation and economic weakness in the euro area, and the possibility of a renewed euro crisis
  • Weakness and/or volatility in emerging markets
  • Effects of the COVID-19 pandemic

4Weighted average ratings on a scale of 0-100 where 0 stands for no risk and 100 stands for the highest possible risk.

5Weighted average ratings on a scale of 0-100 where 0 stands for no driving force and 100 stands for the greatest possible driving force behind the CFOs own firm adapting its operations/business model in response to climate change.

About the survey

This is the 65th quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. The 2023 third quarter survey took place between 19 September and 2 October. 70 CFOs participated, including the CFOs of 13 FTSE 100 and 26 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 43 UK-listed companies surveyed is £345 billion, or approximately 14% 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 visit