A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. To subscribe and/or view previous editions just google ‘Deloitte Monday Briefing’.

Our latest UK Chief Financial Officers Survey, released overnight, shines light on the plans of Britain’s largest corporates. The full report is available here.

The results from the survey are strikingly upbeat, with sentiment among the Chief Financial Officers of the UK’s largest firms improving significantly since the start of the year. The survey, which took place between 21 March and 3 April, shows the largest increase in CFO confidence since the UK economy was emerging from lockdowns in the autumn of 2020. Having run significantly below average throughout last year business confidence has risen to a two-year high and is now well above its long-term average.

The failure of Silicon Valley Bank on 10 March and pressures on some regional US banks seem to have had little if any impact on CFO sentiment. On the contrary, CFOs’ perceptions of external financial and economic uncertainty have fallen at the fastest rate since we first asked this question more than 12 years ago. Moreover, respondents report little change in credit conditions, suggesting that March’s events in the US banking system have not affected the pricing and availability of credit for UK corporates.     

The general picture from the survey is of things turning out rather better than CFOs feared at the start of this year. Worries around Brexit and high energy prices have eased and CFOs have become more optimistic about the outlook for inflation.

The announcement on 27 February of the Windsor Framework, which aims to improve the flow of goods between Britain and Northern Ireland, is likely to have reduced CFO concerns around Brexit which are now close to the lowest level in over six years.  Falling energy prices, with wholesale gas prices down by almost 70% since we surveyed CFOs in December, and the absence of power cuts over the winter, seem to have bolstered confidence.  The survey also shows an improvement in CFO sentiment about the US economy that is consistent with recent upgrades to consensus, or market, forecasts for US GDP growth this year. Meanwhile CFOs report a marked easing of supply chain and recruitment problems while expectations for inflation in one year’s time have declined from 5.8% to 4.2%.   

The findings of the survey chime with a slightly improved picture for the global economy, helped by lower energy prices, easing inflationary pressures and a rebound in growth in China.

Things may be looking up, but they’re hardly rosy. Despite the shift in sentiment CFOs remain in defensive mode. Risk appetite is below normal levels and CFOs are heavily focussed on cost control and building up cash. Forecasters are also cautious. After more than a year of stagnant activity most think that UK activity will flatline or contract this year. Last week the IMF warned of the risks of financial instability and warned of a “rocky” road for the global economy.

Yet for all the ‘ifs and buts’ after a pretty grim start to the year the latest CFO survey paints a surprisingly positive picture.

PS: When Russia slashed the supply of natural gas to Europe last year, the EU set a target to reduce natural gas consumption by 15% over the winter to avoid shortages. Europe was successful in hitting its target, helped by an unusually mild winter. The Economist has built a model to determine how much of the fall in gas consumption was due to the weather. The model showed that after accounting for the weather, Europeans reduced their gas use by around 12% with the Netherlands, Britain and Germany cutting back the most. Demand mainly fell due to higher prices hitting energy-intensive industrial output and causing households to scale back their energy use. Improved efficiency and switching energy sources played a smaller role. The painful adjustment made by households and businesses highlights Europe’s need for long-term solutions, but the extent to which the continent has managed to cope with the collapse of Russian supply (previously 40%-50% of Europe’s natural gas imports), even after accounting for the warmer weather, is an example of remarkable resilience.

Please join me for our annual spring economic update webinar next week, on Wednesday, 26 April, at 13:00 BST, where I’ll assess the economic outlook and discuss how business can navigate the challenges ahead. Register here.