UK Chief Financial Officers (CFOs) are expressing optimism about their businesses as they enter 2024, according to Deloitte's recent CFO survey. The sentiment among finance leaders has seen a second consecutive quarterly rise, with a net 11% of CFOs more optimistic about their business's financial prospects compared to three months ago.
Despite recent economic challenges, including a third-quarter GDP contraction and forecasts of sluggish growth in 2024, CFOs' positive outlook may be attributed to factors such as resilient activity levels, low unemployment, stable corporate profitability, and a notable drop in inflation since the summer.
Inflation concerns and expectations of interest rate hikes have eased, reflecting the decrease in the weighted average rating of the risk of higher inflation from 58 to 53. Finance leaders anticipate a softening of price and wage pressures over the next two years, with expectations of the Bank of England's base rate falling from 5.25% to 4.75% in a year.
Concerns about the UK economy's competitiveness and productivity come in second and third, respectively, with CFOs rating geopolitical factors as the most significant external risk at 63. There is also increased anxiety about the euro area, with a risk rating of 42, up from 34 in the previous survey.
Despite anticipating higher labor costs in the long term (net 92% of CFOs), finance leaders are bullish on technology investment, with a net 63% expecting an increase. There is also an expectation of a greater role for the state in the economy, with 39% foreseeing an increase in taxation and 42% expecting more regulation.
Defensive strategies dominate CFOs' priorities, with 51% focusing on cost reduction and 47% on increasing cash flow. However, expansionary strategies, such as introducing new products or entering new markets, have seen a decline in priority.
While CFOs are starting 2024 on a positive note, uncertainties around geopolitics, low UK productivity, and the defensive stance in balance sheet strategies suggest a cautious approach. Corporates are prioritizing cost-cutting and cash accumulation, signaling a focus on financial resilience in the face of ongoing economic uncertainties.
