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After an initial splurge of optimism following Labour’s General Election win, confidence in business is now on a downward slope and Geopolitics poses the greatest risk to productivity, Deloitte UK's survey of Chief Financial Officers has shown.
The survey showed that UK corporate confidence edged lower in the third quarter of 2024 with a net 6% of CFOs feeling optimistic about the financial prospects of their businesses which is much lower than the 23% after the July General Election.
While noting a drop in CFO confidence, the 69th edition of the quarterly survey states levels are still above the long run average of net -1%.
David Becker, Partner at Deloitte in Guernsey said: ‘Following a strong bounce in optimism after the General Election, sentiment has fallen slightly resulting primarily from global geopolitical risk. Despite this, confidence still remains at above average levels.’
A modest increase in uncertainty was also reported with 31% now rate the level of external financial and economic uncertainty facing UK business as high or very high.
The combined market value of the 66 UK-listed companies surveyed was £341 billion, or 13% of the UKs equity market.
One reason for their uncertainty could lie in the state of current Geopolitical affairs which represented the greatest risk in the survey, which has been the case for the last five quarters.
Ian Stewart, Chief Economist at Deloitte, said: “Geopolitical uncertainty is the biggest worry and we are seeing rising levels of concern about the possibility of a hard landing in the US.”
That "hard-landing" is referring to global low productivity which the US ranked in second place, joint with the UK.
CFO concerns over geopolitics seem to be decoupling from worries about energy prices, with higher energy prices and a disruption in energy supply ranked the seventh biggest risk to business.
Mr Stewart added: “Unlike the period following the invasion of Ukraine in 2022 , when CFOs’ worries about energy supply and prices spiked in tandem with geopolitical concerns, finance leaders today are relatively sanguine about the risks around energy, in part, perhaps because of the decline in the oil price between July and late September.”
The survey also shows that CFOs expect wage growth to slow markedly, from 4.6% in the last 12 months to 3.2% in a year’s time.
As inflationary pressures wane, they expect the Bank of England to cut interest rates to 4% by next September and finance leaders also report that credit is cheaper than at any time in the last two years.
On strategies, CFOs tacked in a more defensive direction in the third quarter of this year. Greater emphasis is now being places on cost reduction and increasing cash flow. With only 11% of finance chiefs identifying capital expenditure as a strong priority.
An overwhelming majority - 95% - expect to raise spending on digital technology and assets such as software, IT and AI, over the next 12 months, following an additional survey question about capital expenditure.
Spending on real estate, machinery, and other physical assets, with a net -2%, are what finance leaders are most cautious about.
On the use of AI, Mr Stewart added: “Economists have been waiting for a new technology that has the potential to reboot productivity growth. If CFOs are right, AI is that technology.”
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