CFO survey: geopolitical risk to the fore
In a new survey, CFOs say that geopolitical developments represent the greatest external risk to their businesses.
Optimism among the UK’s largest businesses edged lower in the third quarter following a strong bounce in the wake of the general election in July. Nonetheless, confidence and risk appetite are still running at above-average levels.
The survey closed shortly before Iran’s missile attack on 1 October and encompassed a period of greater tension in the Middle East. As has been the case for the last five quarters, CFOs say that geopolitical developments represent the greatest external risk to their businesses. Concern about the risk of a potential hard landing in the US has risen sharply and this ranks as joint second greatest risk alongside weak UK productivity.
Unlike the period following the invasion of Ukraine in 2022, when CFOs’ worries about energy supply and prices spiked in tandem with geopolitical concerns, CFOs today are relatively sanguine about the risks around energy, in part, perhaps because of decline in the oil price between July and late September.
The CFO survey has mapped CFO perceptions of external uncertainty since 2010. The third quarter survey registered a modest increase in perceptions of uncertainty, but the absolute level remains low by the standards of the last eight years.
The UK labour market has softened since the start of the year and CFOs expect wage growth to slow markedly, from 4.6% in the last 12 months to 3.2% in a year’s time. With a waning of inflation pressures, CFOs expect the Bank of England to cut interest rates from the current 5.0% to 4.0% by next September. Credit conditions are improving, with CFOs reporting that credit is cheaper than at any time in the last two and a half years.
Our special question this quarter shows that the overwhelming majority of CFOs expect to raise spending on digital technology and assets, such as software, IT and AI, both over the next 12 months and on a five-year view. Investment in business performance and workforce skills emerge as lesser, though significant focus areas, especially in the longer term. CFOs are most cautious on spending on real estate, machinery and other physical assets.
The UK economy saw an unexpectedly strong recovery in the first half of the year, with GDP growth outstripping that in any other G7 economy. The latest CFO Survey points to a continued growth ahead, albeit probably at a slower pace than in the first half of the year.
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. To subscribe and/or view previous editions just google Deloitte Monday Briefing.
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