The UK’s largest businesses enter 2024 in a surprisingly positive mood. The latest CFO survey, which was conducted in a two-week period to 12 December, shows sentiment among the chief financial officers of large UK firms rising for the second consecutive quarter to well above-average levels. CFO risk appetite, while still subdued, has risen to an 18-month high.
These findings may seem at odds with the sluggish pace of growth seen in 2023. Part of the explanation is that inflation and interest rate worries that have dominated CFO thinking have eased markedly. Inflation and interest rates have dropped down the CFOs’ list of worries and CFOs expect wage and price pressures to continue to ease.
Nonetheless, CFOs continue to see near-term risks. Perceptions of external financial and economic uncertainty have risen and are running at above-average levels with geopolitics seen as the greatest external risk over the next 12 months. CFOs foresee growth ahead – but not imminently. Corporates are focused on cutting costs and building up cash rather than hiring, capital spending or M&A.
Three long-term themes emerge from this quarter’s survey. First, CFOs expect labour costs to remain elevated, something that helps explain why CFOs also expect to see sustained business investment in new technology. Second, CFOs expect interest rates to average 3.5 per cent over the next five years, far higher than the average of 0.5 per cent that prevailed between 2009 and 2022. Third, CFOs believe that we are in an era of big government that will be associated with rising levels of regulation and taxation.
CFOs start 2024 in a positive mood, but one tempered by high levels of uncertainty. Most economists expect UK GDP growth to pick up from around the middle of this year. CFOs foresee better times ahead, but based on their defensive balance sheet stance, not yet.
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