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”.

The big data event for economists in the UK last week was the release of May GDP numbers. After a record 27% contraction in March and April, the easing of the lockdown from May was expected to generate a strong bounce in activity. The outcome, a disappointing 1.8% increase in GDP, has dented hopes of a swift, ‘V-shaped’ recovery.

This fits with the findings of the latest Deloitte CFO Survey, released today, which shows large companies planning for a long-haul recovery.

UK Chief Financial Officers expect growth to come back only slowly. Almost half think it will take a year or more for their revenues to reach pre-pandemic levels.

CFO perceptions of uncertainty are higher than at any time before the Covid-19 pandemic, albeit slightly below April’s record reading. A huge shrinkage of the economy and pervasive uncertainty have knocked the animal spirits of corporates. Just 9% of CFOs say now is a good time to take greater risk onto their balance sheets, close to the lowest readings on record.

Our forecasts for UK GDP growth this year has been at the low end of the range of market forecasts. The weakness of May GDP, alongside subdued readings from the CFO Survey, has led us to nudge down our numbers slightly, from a contraction of 11.7% to one of 12.2% in 2020. The average, or consensus forecast for UK GDP this year has dropped from -5.2% in April to -9.2% today. In 2021, we see the economy growing by 9%, up from our previous estimate of 8.5%.

The easing of the lockdown in June and July should deliver a strong increase in activity and we are forecasting growth of 11.4% in the third quarter. This, like much else these days is unprecedented, but would represent a clawing back of just over half the loss of GDP sustained in the second quarter. The pace of the recovery is likely to be slow and we do not expect overall levels of activity to reach pre-pandemic levels until the summer of 2022.

For corporates, the pandemic overshadows all other causes of concern. CFOs rate it as the greatest risk facing their businesses – and by a wide margin. As new fronts open in the ongoing US-China economic conflict, geopolitics is ranked second on their risk list while Brexit takes the third spot.

Against a backdrop of elevated uncertainty and very weak demand, CFOs are firmly focused on protecting their balance sheets by bearing down on costs and building cash. Official data confirm that corporates’ are building cash reserves, and at the fastest pace on record. Views on corporate leverage have changed too. In the last ten years, CFOs have been relaxed about levels of corporate debt. But, following a recent surge in borrowing, the balance of opinion among CFOs is that corporate balance sheets have become overleveraged.

Growth in business investment, which has slowed markedly since the EU referendum, is facing a continued squeeze. Almost two-thirds of CFOs expect their capital expenditure to decrease over the next three years due to a combination of the Covid-19 pandemic and the UK leaving the EU.

As the lockdown eases growth will rebound. But UK corporates are planning on a slow recovery, one in which corporate revenues and activity remain below normal well into next year.