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January 7, 2014

CFOs fearless of the year ahead: Deloitte UK

Chief financial officers (CFOs) of one third of the UK equity market face the year 2014 with an appetite for risk-taking, expansion and renewed business confidence, the latest quarterly Deloitte UK’s CFO survey revealed.

The survey showed that 57% of CFOs believed this is a good time to take risk onto their balance sheet, up from 25% the previous year and just 1% in 2008.

According to Deloitte UK, CFOs perceived that in the last quarter of 2013 two of the main concerns for business activity, uncertainty and capital constrains, have abated in the past years for the first time since the financial crisis erupted in 2008.

In terms of economic and financial uncertainty, 60% of surveyed CFOs said it is above normal levels, continuing a decreasing trend started in the last three years.

In addition, CFO assigned a 16% probability to the likelihood of the economy falling into a recession, down from a 40% probability a year ago.

As for access to finance, 80% of surveyed CFOs said for the first time since the crisis that bank borrowing was the most attractive source of funding, with almost half of them expecting it to increase, together with bond and equity issuance, in 2014.

In that regard, the policies of the Bank of England new Governor Mark Carney may have played a role in the increased levels of business optimism, with 49% of CFOs answering they have made them more positive about the economic outlook.

"The policy of forward guidance under Mr Carney seems to have reassured corporates that rates are not likely to rise quickly and contributed to the spirit of greater optimism," Deloitte UK chief economist Ian Stewart told The Accountant.

In July 2013, immediately after his appointment, Carney released his forward guidance, whereby interest rates (i.e. the cost of borrowing money) will not be raised from the record low of 0.5% until unemployment rate falls to 7%.

The survey showed that a majority of CFOs, 59%, believed the Bank of England will raise interest rates by mid-2015 and 23% expected they will rise in 2014.

Stewart, co-author of the survey, said the big message of the survey for the accounting profession is that businesses are looking to expand and take greater risk.

"[This] implies a change in the way in which corporates run their balance sheets and a switch from cash conservation and debt reduction to capex [capital expenditure], hiring, M&A and expansion," he explained.

The survey showed that 70% of CFOs expected UK corporates to increase hiring in 2014, 91% of them expected to see revenues increased and 88% predicted an increase of M&A activity in the same period.

Deloitte UK said it wasn’t able to share the names of individual participants of the survey, which was conducted among 122 CFOs, including 32 at FTSE100 companies and other quoted companies, overall "accounting for 30% of the entire UK equity market," according to Stewart.

Related stories:

Country survey: Retendering edicts herald the ‘new normal

Country survey: Profession without prejudice brings pride to UK business and economy

Related link:

Deloitte UK

 

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