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UK finance bosses turning cold on debt

UK finance bosses turning cold on debt

Tuesday 24 October 2023

UK finance bosses turning cold on debt

Tuesday 24 October 2023


A new survey from Deloitte, probing the views of national Chief Financial Officers, shows many of them are less attracted to bank borrowing than at any time since the financial crash, but confidence in business is still strong.

Debt reduction and being defensive over balance sheets is the priority for finance leaders across 70 companies, with 39 of them in the top 250 companies in Britain.

9% are feeling more optimistic about their companies’ financial prospects than the previous three months, however.

Concerns still remain over high inflation, but despite these uncertainties there is hope over the prospect of AI and government policy driving private sector responses to climate change.

Ian Stewart, chief economist at Deloitte, said: “Higher interest rates have flipped a decade-old consensus which was previously in favour of debt finance. This shift in thinking means that equity finance, which has been out of favour for years, is now seen as being more attractive than debt finance.

“Finance leaders are preparing for a period of high interest rates, with predicted rates falling only slightly over the next year. If realised, this would represent a period of tight monetary policy, the likes of which has not been seen since 2008.” 

interest_rate_rise.jpg

Pictured: Those surveyed expect the base rate to drop by about 1% in a year's time.

Firms’ operating costs have risen in the last 12 months, and 84% expect them to continue to increase in the next year. Reducing cost continues to be rated the highest corporate priority in the next 12 months, with 54% rating it as a strong priority for their business.

58% of CFOs believe their businesses will face significant or wholesale change in the move to a low-carbon economy in the next 10 years, with only 4% seeing little or no change. The vast majority (82%) continue to see opportunities for their own businesses in the transition to a low-carbon economy.

Finally, most CFOs (54%) have become more optimistic that AI can deliver improvements to business performance. 86% reported that their understanding of AI and its uses has increased.

Ian Stewart said: “New technology and the transition to net zero will reshape the economy and play a major role in driving growth. Finance leaders believe that the application of artificial intelligence will lift productivity and that the energy transition will create significant business change and new business opportunities.”  

Guernsey-based John Clacy, Head of UK Financial Services Portfolio Audit, said despite geopolitical challenges business confidence appears to be staying high.

“Locally, business leaders will be pleased to note Ian’s comments that new technology and the transition to net zero will reshape the economy and play a major role in driving growth,” he said.

“Finance leaders also believe that the application of artificial intelligence will lift productivity and that the energy transition will create significant business change and new business opportunities.”

Pictured (top): John Clacy.

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