FTSE finance chiefs brace for recession

Britain’s top finance chiefs are bracing for a recession driven by inflation crimping consumers and thinning businesses’ margins, a new survey published today reveals.

Chief financial officers (CFO) at the UK’s largest listed companies think there is a 63 per cent chance of the economy swinging into reverse over the next 12 months, according to consultancy Deloitte.

The survey, which compiled the thoughts of 77 CFOs of FTSE 100 and 250 firms, adds to the growing cache of evidence illustrating the lack of confidence in the UK economy.

Growing pessimism among the UK’s biggest corporates may lead to weaker investment and hiring activity, weighing on output. The UK economy likely avoided a second quarter contraction after May’s GDP figures beat expectations to rise 0.5 per cent.

Ian Stewart, chief economist at Deloitte, said: “The [CFOs] of the UK’s largest companies are braced for a recession. Finance leaders have edged towards more defensive balance sheet strategies, particularly cost control and building up cash.”

Living costs have jumped at a 40-year high of 9.1 per cent, which is eroding consumers’ spending power at the quickest pace since records began.

Trade disruption caused by Covid-19 kneecapping supply chains, Russia’s invasion of Ukraine and stiff wage pressures have propelled businesses’ costs higher.

Some 86 per cent now expect inflation to exceed 2.5 per cent in two-years – the highest reading on record and above the Bank of England’s two per cent target.

That reading will worry the Bank as it indicates firms’ behaviour is being shaped by higher prices in the future, which can lead to a self-fulfilling inflation cycle. 

The Bank has lifted rates at each of its last five meetings to a 13-year high of 1.25 per cent. It is expected to lift borrowing costs 50 basis points at its next meeting on 4 August, something it has not done since it was made independent 25 years ago.

Rate rises have made it more expensive for businesses to borrow money, CFOs told Deloitte. Firms have to offer a premium on the Bank’s base rate to attract investors when selling debt.

Other analysts said strong business investment driven by the firms capitalising on the final months of the super-deduction will keep the UK just above water.

EY Item Club said today the UK will narrowly avoid a technical recession, defined as two consecutive quarters of growth.