Brexit clarity sends confidence among companies
THE decline in Brexit uncertainty has helped business confidence among chief financial officers (CFOs) to its steepest rise since the survey began 11 years ago, according to Deloitte.
Pessimism over the long-term impact of Brexit declined to its lowest level since 2017, although a majority of CFOs still believe Brexit will cause long-term harm to business.
Deloitte says the rapid growth in business confidence in the fourth quarter of 2019 is even greater than the rise in 2009 when the Bank of England cut interest rates during the financial crisis to stimulate borrowing.
Only 34 percent of CFOs surveyed by the auditing giant during the fourth quarter of 2019 now say the rate of uncertainty among their firms is high or very high. This is a 28 percentage point fall from the previous quarter.
Confidence is at its highest level ever although rising geopolitical risks and weak demand comprise the two largest concerns.
The report states: “Clarity on the nature and timing of the UK’s formal exit from the EU, if not future trading arrangements, seems to have bolstered CFO spirits.
“The election of a political party with a commanding parliamentary majority, and an end to the immediate possibility of a radical Labour government, have further reduced political uncertainty.”
Only 18 per cent of CFOs believe that Brexit will make the environment better for British business in the long-term though. This is up from a record low 7 percent in the second quarter of 2019 however.
There was also a strong rise in expectation that corporate revenues will increase over the next 12 months, but the proportion who expect operating costs to rise in that time period is at net 58 per cent.
Cost reductions and increasing cash flow remain the two most important priorities for CFOs, who remain, on balance, more committed to defensive strategies.
Easing trade tensions between the US and China resulting from the completion of a “phase one” trade deal cutting tariffs on many Chinese goods as well as the signing of a US-Mexico-Canada trade deal has appeared to reduce uncertainty.
Richard Houston, chief executive of Deloitte North and South Europe, said: “It is very encouraging to see such a dramatic uptick in business confidence.
“The big question is to what extent positive expectations for revenues, spending and hiring, translate into an actual strengthening of corporate activity in 2020.”
Researchers reached out to 119 chief financial officers, many from FTSE 100 and FTSE 250 companies between December 16 and January 6.
Mr Houston added: “In addition to boosting business confidence, a majority government is well placed to focus on the challenges and opportunities the UK faces.
“Rebalancing the economy, driving growth across all regions and focusing on skills and social mobility can help to position the UK as an attractive place to do business in the long term.”