Chief financial officers (CFOs) polled by the consultancy Deloitte reported a sharp rise in uncertainty facing their businesses and have scaled back their expectations for investment and hiring over the coming year.
Almost three-quarters of the 122 CFOs, or 73%, said the level of financial and economic uncertainty was either above normal, high or very high. That was up from 55% in the second quarter of this year and is the highest proportion for more than two years.
China’s economic slowdown, which has coincided with a dramatic stock market rout in the country and sent shockwaves across global financial markets, appeared to play a strong part in falling risk appetite among UK companies. In the survey, 60% of CFOs said the Chinese downturn would have a negative effect on their business in the next 12 months.
Ian Stewart, the chief economist at Deloitte, said: “Emerging market weakness and equity market turmoil have taken a toll on risk appetite among the UK’s largest businesses.
“But sentiment among large businesses is changeable and heavily influenced by the global environment, especially by news flow and the performance of equity markets. In both areas, good news has been in short supply of late: UK equities down 16% from their April peaks; US institutional investor optimism at 2009 levels; financial market volatility up sharply and more downgrades to emerging market growth forecasts.”
Asked to rate the factors that pose threats to their business, CFOs attached the greatest importance to the prospect of higher interest rates, weakness in emerging markets and geopolitical risks, and deflation and economic weakness in the eurozone.
But they appeared less concerned about domestic demand and political risks, with worries receding over the UK’s referendum on EU membership and the country’s poor productivity record. Ahead of a spending review by the chancellor, George Osborne, at the end of November, worries about UK spending cuts edged up.
Stewart said: “The firms on the CFO survey panel are large and have heavy overseas exposure, with more than half their revenues coming from outside the UK. While external risks are centre stage, CFOs are positive on prospects for the UK economy.”
Policymakers slashed rates during the downturn and they have been at a record low for more than six years. In the US, the Federal Reserve also opted to keep interest rates at a record low at its last meeting, despite speculation that policy could be tightened.
Stewart said: “Falling corporate risk appetite and sentiment suggests that the Federal Reserve and Bank of England have been absolutely right to maintain interest rates at ultra-low levels. But despite the more emollient tone from central banks, CFOs still see tighter monetary policy as the number one threat to their businesses.”
A separate survey of entrepreneurs and small business owners painted a rosier picture after a strong year, and reported that the majority are planning for “even brighter times ahead”. A report by EY said many were anticipating substantial increases in profits and employment growth.
Profits increase for 76% of respondents and 39% created more than 20 new jobs. Over the next three years, 90% of the UK’s entrepreneurs expect their profits to grow, with 53% forecasting that growth will top 10%.
Entrepreneurs in the technology sector (59%) and those with businesses in the south-east and south-west (67%) are among the most optimistic.
Stuart Watson, a spokesman for EY, said: “Entrepreneurs have survived a turbulent 12 months, proving the resilience of the UK’s medium-sized firms. Uncertainty over the general election result and an ongoing crisis in the eurozone could have hampered their businesses’ growth.
“However, responding entrepreneurs have not only laid solid foundations to support sustainable growth in the future, but are firmly planning to lead the way when it comes to increasing turnover and creating jobs.”
This article was written by Katie Allen, for theguardian.com on Monday 5th October 2015 00.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010