Wednesday 9th July, 2014

According to the Deloitte CFO Survey for Q2 2014, policy change has emerged as the biggest concern for chief financial officers, coming before economic uncertainty. The survey gauged the views of 112 CFOs, including 31 from FTSE 100 and 37 from FTSE 250 companies.

CFOs were asked to rate (on a scale of 0 to 100) the level of risk individual policy issues pose to their business. CFOs gave the 2015 General Election and a potential referendum on the UK’s EU membership ratings of 55 and 50 respectively.

Interest rate rises and tightening of monetary conditions were rated at 46, volatility in emerging markets rated at 45 and a housing bubble was given a 39 rating. The referendum on Scottish independence was given a 38 rating by CFOs.

The survey revealed that despite worries about the policy backdrop, CFOs’ perceptions of economic and financial risk have continued to decline. 49% said that the level of external financial and economic uncertainty facing their business is above normal, high or very high (down from 73% in Q2 2013 and 95% in Q2 2012).

Corporate defensiveness has dropped to its lowest level in four years while expansion has grown for the fourth consecutive quarter. 26% of CFOs said reducing costs is a priority, down from 34% in Q2 2013 while 26% said increasing cash flow is a priority, down from 40% on the year.

Ian Stewart, chief economist at Deloitte, said:

"UK corporates have shifted from balance sheet repair to growth and business spending is emerging as a driver of the UK recovery. Cost control, debt reduction and building cash helped get business through the recession but the weight CFOs attach to such defensive strategies dropped to a four year low in the second quarter. Credit is cheap and available for large companies and a record 83% rate bank credit as an attractive form of credit for their business."

 "The positive sentiment we see in the Survey is now coming through in the official data. Hiring by corporates has risen by 3.2% in the last year and investment is up 10.6%. In May corporate bank borrowing saw the first year-on-year rise in five years."