CFOs of the UK’s largest firms are optimistic about prospects for their own businesses as they enter 2024, according to Deloitte’s latest CFO survey.

Better-than-expected growth, a sharp fall in inflation since the summer and the absence of stress in financial markets have all helped to boost sentiment for the second consecutive quarter to well above average levels. A net 11% of CFOs are more optimistic about the financial prospects of their business than they were three months ago.

Ian Stewart, Chief Economist at Deloitte, says the findings may seem at odds with a contraction in third quarter GDP and forecasts of sluggish UK growth in 2024. “But while the pace of growth softened in 2023, activity proved more resilient than expected, with unemployment at low levels, corporate profitability holding up and an absence of stress in financial markets. Crucially, inflation has fallen sharply since the summer, bolstering expectations of earlier interest rate reductions.”

A total of 72 CFOs participated in Deloitte’s most recent quarterly CFO Survey, including CFOs of 12 FTSE 100 and 26 FTSE 250 companies together with CFOs of other UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. 

Inflation worries ease

The risk of higher inflation has dropped down CFOs’ list of concerns as the threat of persistently high inflation and the prospect of further interest rate rises has weakened, consistent with price pressures easing faster than expected in recent months.

Meanwhile, finance leaders expect price and wage pressures to soften over the next two years. They see the Bank of England’s base rate falling from its current level of 5.25% to 4.75% in a year’s time.

A net 92% of CFOs expect labour costs to remain elevated in the long term, relative to 2023. But CFOs are decidedly bullish on investment in new technology, with a net 63% of CFOs expecting investment in new technology to increase in the long term.

Finance chiefs also anticipate a greater role for the state in the economy, with significant proportions expecting an increase in levels of taxation and regulation.

Geopolitical factors rated biggest risk

CFOs again see geopolitical factors as the greatest external risk to their own businesses over the next 12 months. A net 44% of CFOs expect greater diversification and near-shoring of supply chains in the longer term.

There is also increased anxiety about productivity and competitiveness in the UK economy, which is now second on the risk list. Higher energy prices, or disruption to supply, is seen as the third biggest risk. At the same time, there is a marked deterioration in sentiment around the euro area, with an increased risk rating of 42, up from 34 in the last survey.

Defensive strategies dominate

CFOs’ balance sheet strategies remain largely defensive, with 51% of CFOs saying that reducing costs is a strong priority for their business over the next 12 months and 47% of CFOs saying Increasing cash flow will be a strong priority. However, plans to introduce new products and services or enter new markets has fallen down the list of priorities; only 15% of CFOs say it’s a strong priority now.

“While finance chiefs are starting 2024 in positive spirits, this is tempered by high levels of uncertainty, concerns around geopolitics and low UK productivity. CFOs foresee growth ahead but – based on their defensive balance sheet stance – not imminently,” Stewart says.

“For now, corporates are focused on cutting costs and building up cash rather than hiring, capital spending or M&A. But unlike in previous periods of uncertainty, the financial system is operating and larger corporates can access debt, albeit at higher rates. Scale matters as the large corporates represented in the survey panel are generally better able to manage periods of stress and are less vulnerable to tightening credit conditions than smaller and medium sized companies.”