Geopolitics remain the biggest risk to business for UK CFOs
- Sentiment among UK CFOs has edged lower this quarter, but is running at above average levels;
- Concern about the risk of a US ‘hard landing’ has increased;
- CFOs expect to raise spending on digital technology and assets such as software, IT and AI, both over the next 12 months and over a five-year time frame;
- Finance leaders remain optimistic about AI’s ability to drive improvements in business performance.
Deloitte’s latest survey of UK Chief Financial Officers shows that corporate confidence edged lower in the third quarter of 2024, following a strong bounce in optimism after the General Election. Sentiment has fallen among CFOs, with a net 6%1 feeling more optimistic about the financial prospects of their businesses now than three months ago (which was at net 23%). Despite this, confidence is still running above the long run average of net -1%.
UK CFOs also report a modest increase in uncertainty – 31% now rate the level of external financial and economic uncertainty facing their business as high or very high, compared to 23% last quarter. This remains below the long-term average of 39%.
Ian Stewart, chief economist at Deloitte, said: “Corporate sentiment has edged down but is running at above average levels. Geopolitical uncertainty is the biggest worry and we are seeing rising levels of concern about the possibility of a hard landing in the US.”
As has been the case for the last five quarters, CFOs say that geopolitical developments represent the greatest external risk2 to their businesses, with a weighted average3 rating of 70. Low productivity in the UK is in joint second place (with a weighted average of 53), alongside sharply rising concern about a potential hard landing in the US.
However, CFO concerns over geopolitics seem to be decoupling from worries about energy prices – with higher energy prices and a disruption in energy supply ranked the seventh biggest risk to business.
Rate expectations and strategies
CFOs expect wage growth to slow markedly, from 4.6% in the last 12 months to 3.2% in a year’s time. As inflationary pressures wane, CFOs expect the Bank of England to cut interest rates from the current 5.0% to 4.0% by next September. Finance leaders also report that credit is cheaper than at any time in the last two years. A net 45% report that credit is costly, down from a peak of net 86% last summer.
Optimism in AI drives investment
Finance leaders are most cautious about spending on real estate, machinery, and other physical assets, with a net -2% expecting an increase in spend within the next 12 months.
-Ends-
Note to editors
1 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 6%) was then computed by subtracting the percentage of CFOs less optimistic from the percentage more optimistic. Net balances can also be negative. In the case of CFO optimism, a negative reading would imply 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.
2 The 12 risk areas tracked in the survey are:
- Rising geopolitical risks worldwide including forthcoming elections
- 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.
About the survey
This is the 69th quarterly survey of Chief Financial Officers and Group Finance Directors of major companies in the UK. The survey took place between 17th and 29th September 2024. A total of 68 CFOs participated in the survey, including the CFOs of 32 FTSE 350 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 66 UK-listed companies surveyed is £341bn, or approximately 13% 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.
About Deloitte
In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is a subsidiary of Deloitte NSE LLP, which is a member firm of DTTL, and is among the UK's leading professional services firms.
The information contained in this press release is correct at the time of going to press.
For more information, please visit www.deloitte.co.uk.
Member of Deloitte Touche Tohmatsu Limited.