The Deloitte CFO Survey: 2016 Q1

EU's legal, regulatory and compliance framework. ... messages coming from the Bank ..... The Bank of England cut its growth forecasts for the UK economy and ...
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Q1 2016

The Deloitte CFO Survey Brexit tops risk list This quarter’s CFO Survey is the first to be conducted since the announcement that the UK’s EU membership referendum will take place on 23rd June. It shows a marked rise in support for the EU among Chief Financial Officers. 75% of CFOs say they believe it is in the interests of UK business for the UK to remain in the EU, up from 62% in the fourth quarter of 2015. 8% of CFOs favour leaving the EU, up from 6%. The EU scores high marks with CFOs for its beneficial effects on UK exports, inward investment and financial services. At the opposite end of the scale only 15% of CFOs think UK business and the UK economy benefit from the EU’s legal, regulatory and compliance framework. The dominant concern for CFOs is the forthcoming EU referendum. It tops the corporate worry list, eclipsing longstanding concerns about emerging markets and growth in the euro area. While CFOs see rising risks attached to the referendum, concerns around the other seven major macroeconomic categories of risk (see chart 4) have reduced or remained unchanged in the last three months.

Authors Growing concerns about Brexit seem to be behind a marked increase in CFO perceptions of financial and economic uncertainty. It now stands at levels last seen in early 2013, at the tail end of the euro crisis. Risk appetite has also suffered, with the proportion of CFOs saying that now is a good time to take risk dropping from 51% to 25% in the last year. With the storm clouds gathering CFOs have maintained a focus on reducing costs and increasing cash flow. Enthusiasm for expansion has taken a knock too. Corporates are pulling in their horns, with expectations for hiring and capital spending at three-year lows. Despite growing concerns about the forthcoming EU referendum, 53% of CFOs say they have not made, and are not in the process of making, contingency plans for a possible UK exit from the EU. 26% say they have made, or are making, such plans. It may be that the continued, albeit narrowing, lead for the ‘remain’ camp in the opinion polls, means that many corporates see a UK exit from the EU as being a fairly low probability event.

Chart 1. Favourability of EU membership % of CFOs who gave the following responses when asked whether it is in the interests of UK businesses for the UK to remain a member of the EU 80% 70% 60%

75%

Debapratim De Senior Economic Analyst 020 7303 0888 [email protected] Alex Cole Economic Analyst 020 7007 2947 [email protected]

Contacts Ian Stewart Chief Economist 020 7007 9386 [email protected] Richard Muschamp CFO Programme Leader 020 7007 0724 [email protected]

For current and past copies of the survey, historical data and coverage of the survey in the media and elsewhere, please visit: www.deloitte.co.uk/ cfosurvey

62%

50% 40%

28%

30%

17%

20% 10%

8%

6%

0% Yes

2015 Q4

No

4% Don't know, no strong opinion, prefer not to say

Too early to say: Depends on results of renegotiation*

2016 Q1

* Option provided to respondents in the Q4 2015 survey, prior to the renegotiation in February

April 2016

Ian Stewart Chief Economist 020 7007 9386 [email protected]

2 | CFO Survey Q1 2016 Brexit tops risk list

Focus on EU referendum ​ majority of CFOs report that A their businesses have not made, and are not in the process of making, contingency plans for a possible British exit from the EU. 26% say they either have such plans or are developing them.

Chart 2. Preparedness for a UK exit from the EU % of CFOs whose businesses have made, or are in the process of making, contingency plans for a possible British exit of the EU

Prefer not to say 20%

Yes 26%

No 53%

A large majority of CFOs