CFOs forecast business growth to be twice inflation despite election uncertainty

POLICY uncertainty at home and economic and geopolitical risks overseas are the central challenges facing chief financial officers of the UK’s largest companies as they enter 2015.

Despite uncertainties, CFOs are upbeat about prospects for UK earnings growth and business investment in 2015. They expect earnings in their businesses to rise on average by 2.9% in 2015, far faster than CPI inflation which economists expect to increase by 1.3%.

Deloitte’s latest CFO Survey gauged the views of 119 CFOs of FTSE 350 and other large private UK companies.

When asked to rate the level of risk posed between 0 and 100, CFOs attached a 63 rating to the General Election and 56 to deflation and weakness in the Euro area and to a possible referendum on the UK’s membership of the EU. The level of risk posed by each factor has risen in the last three months.

Further UK-specific concerns – poor productivity, the possibility of a housing bubble and further cuts in spending – ranked as the lowest risks, each scoring 39.

Martin Jenkins, practice senior partner at Deloitte in Yorkshire and the North East, said: “Rising levels of uncertainty have caused a weakening of corporate risk appetite which, nonetheless, remains well above the long-term average.

“Concerns about policy change after May’s General Election have risen significantly and this is seen as the biggest risk facing UK business in 2015.  Deflation and weakness in the euro area is a growing concern and is now the second greatest business risk, followed by a UK referendum on EU membership and by emerging market weakness. Again, CFOs believe that the level of threat posed by each has risen over the last three months.

“This marks a big shift in thinking. Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere.

“CFOs expect 2015 to be a year of investment and of recovering real earnings in the UK. Corporate and consumer spending look set to lend the UK economy important support, suggesting the UK will post decent growth through 2015.

“CFOs are positive on the UK business environment. Most do not think the UK has a particular productivity problem and CFOs overwhelmingly see the UK as a good place to do business.”