CFOs of the UK’s largest companies are hungrier for risk now than they have been at any point in the past seven years, Deloitte research suggests.
Nearly three-quarters (72%) say this is good time to take risk onto their balance sheets. That figure is up from 65% in Q2 2014 and three times the level (23%) seen in Q3 2012.
Nevertheless, Deloitte’s CFO Survey for Q3 2014 found that CFOs’ perceptions of economic and financial uncertainty rose in the third quarter for the first time in two years.
More than half (56%) said the level of financial and economic uncertainty facing their business was above normal, high or very high, up from 49% in Q2 2014. Scotland’s independence referendum seems to have been a dominant cause of concern. Perceptions of risk among CFOs completing the survey before the result were twice as high as for those who responded after.
Meanwhile, sentiment about the euro area has deteriorated markedly, with a net percentage of -39% seeing improving prospects for the region, down from +54% in Q1 2014.
Confidence in emerging markets continued to decline, with a net balance seeing an improvement of -13%. By contrast, CFOs are upbeat on prospects for the UK – a net balance of +85% reported improved growth prospects.
CFOs have become significantly more positive about official policy in the UK, which is seen as increasingly conducive to the long-term success of businesses. Some 97% said the Bank of England’s monetary policy was appropriate, up from 91% in Q4 2012.
Credit conditions continue to improve. A net 83% of CFOs said credit is easily available and a net 82% said credit was cheap. In addition, CFOs remain confident about growth – a net 90% expects revenues to increase in the next 12 months.
Furthermore, 94% approved of the government’s labour market policies, up from 88% in Q4 2012. Tax policy was endorsed by 90% of CFOs, up from 75% in Q4 2012, while public spending plans were backed by 89%, up from 58% two years ago. Nearly three-quarters (73%) saw the government’s immigration policy as being appropriate, a rise from 60% in Q4 2012.
Overall, businesses are more concerned about policy issues rather than economic worries. CFOs ranked the 2015 general election and a future UK referendum on EU membership ahead of deflation, weakness in the euro area and higher interest rates as risks to their businesses.
Commenting on the findings, Ian Stewart, chief economist at Deloitte, said: “With a resurgent US economy, good growth in the UK and plentiful liquidity, CFOs have shrugged off the effects of rising uncertainty and weakness in Europe, sending corporate risk appetite to a seven-year high. Expectations for corporate revenues and margins remain close to the four-year high seen in Q2.
“But it’s not all plain sailing for the corporate sector; perceptions of economic and financial uncertainty rose for the first time in two years. Weakness in the euro area economy, events in the Middle East and Ukraine and, particularly, the Scottish referendum have created new uncertainties. Political risk has eclipsed worries about the economy as concerns for CFOs.”
Sally Percy is editor of The Treasurer