More than three quarters of CFOs believe the UK will be worse off out of the EU, says Deloitte

More than three-quarters of chief financial officers believe the UK will be worse off as result of leaving the EU, a new Deloitte survey has found.

Approximately 80 per cent of CFOs surveyed by the big-four accountant said they expected the long-term business environment to be worse on leaving the EU. The UK is scheduled to leave the bloc on 29 March this year but there are question marks around that departure date after the House of Commons ordered Theresa May to reopen negotiations with the EU following her historic defeat in January.

The uncertainty surrounding Brexit has also had a detrimental effect on hiring and spending decisions, with more than half of CFOs saying that hiring will slow over the next three years. Nearly half – 49 per cent – of those surveyed said capital expenditure will slow, up from 44 per cent in the third quarter of last year. 

Over 100 CFOs took part in Deloitte's 2018 fourth quarter survey, including CFOs of 20 FTSE 100 and 41 FTSE 250 companies.

Deloitte chief economist Ian Stewart said:  “This survey shows that uncertainty over Brexit is driving a marked shift towards defensive balance sheet strategies among British businesses. With the UK’s growth prospects heavily dependent on the so far uncertain nature of its exit from the EU, corporates are cutting back on capital expenditure and hiring, focusing instead on cost reduction.

“Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control. Businesses seem to be increasingly pricing in a worst-case outcome. Anything better, including a delay or a deal, could deliver a Brexit bounce in sentiment.”

Brexit has also caused a shift in priorities for CFOs, with the majority now focusing on cost control. Fifty-six per cent said cost control was a strong priority, compared with 53 per cent in the third quarter. Increasing cash flow was also near the top of the list, and is a priority for 47 per cent on CFOs.​

The uncertain political climate has loosened the appetite for risk, which has dropped to a nine-year low, while revenue growth expectations have also taken a hit and are down to the lowest level since the EU referendum in 2016.

"Expansionary strategies such as introducing new products and services, increasing capital expenditure and expanding by acquisition have fallen out of favour," the accountant said. "CFOs have now adopted their most defensive mix of strategies in nine years."

David Sproul, senior partner and chief executive of Deloitte north west Europe, said the attitudes highlighted in the survey demonstrated a "hunkering down" among CFOs.

“Given the ongoing Brexit uncertainty, this attitude is understandable and demonstrates that business urgently needs clarity about the UK’s future relationship with the EU," Sproul said. "Unless a favourable deal is agreed, it seems likely that this current lack of appetite for investment or recruitment will continue.”

Meanwhile, fellow auditor EY said the UK has a stronger rate of economic growth in its grasp for 2019 and 2020 if it clinches a withdrawal deal with the EU on 29 March.

EY said the UK had the "overall ingredients" to achieve 1.5 per cent growth in 2019 and 1.7 per cent growth in 2020, up from 1.4 per cent last year.

If the UK leaves the EU without a deal, growth forecasts will drop to just 0.7 per cent this year and 0.6 per cent the following year, with the "very real possibility" of economic stagnation and mild recession in the second half of this year.

EY chief economist Howard Archer said: “We’ve based our central forecast on the assumption that the UK ultimately secures a deal to leave the EU in late-March. In a 'no-deal' Brexit scenario there would be major uncertainty and a negative impact on business sentiment and investment, as well as consumer spending. However, it should be remembered that consumer spending proved resilient in the aftermath of the June 2016 referendum vote. Trade will also be affected as trade barriers, both tariff and non-tariff, are implemented. But, with both exports and imports suffering, the net effect on GDP growth from this source would be ambiguous.”

Archer added that if the UK left the EU without a deal it would be likely that a sharp drop in sterling would help UK exporters while also pushing up businesses' costs and consumer price inflation, which would weigh on households' purchasing power.