Finance leaders expect a return to growth in 2021 with optimism rising to a record high, according to Deloitte’s latest survey of chief financial officers (CFO).
Despite the surge in business optimism, half of CFOs do not expect demand for their own businesses to recover to pre-pandemic levels until the last quarter of 2021 or later.
A total of 90 CFOs participated in the latest survey, including those at 12 FTSE 100 and 44 FTSE 250 companies.
There has been a sharp improvement in CFO expectations for UK corporates’ revenues this quarter, with 71% expecting a rise over the next 12 months, up from 29% in the third quarter of 2020, while 53% expect operating costs to rise.
For the first time since 2015, a net balance of CFOs are expecting corporate operating margins to increase in the next year.
Risk appetite remains weak though, with only 19% believing it is a good time to take greater risk onto the balance sheet – although this is up from just 3% in the first quarter last year.
Consistent with the idea of a return to growth, CFOs’ expectations for inflation have risen markedly since last year, with 59% now expecting consumer price inflation to be at or above 1.6% in two years’ time, up from 36% three months ago.
While still showing a net negative balance, CFOs’ expectations for hiring, capital spending and discretionary spending have increased from the record lows seen this time last year. Expectations for hiring and spending are running higher than the levels seen between 2016 and mid-2019.
More than three quarters (78%) of finance leaders expect Covid-19 restrictions on movement and activity to continue through the first half of 2021, while 57% expect these measures to be removed permanently in the third quarter.
CFOs also believe that the pandemic is set to trigger a fundamental change in the business environment.
An overwhelming net balance (98%) of CFOs expect flexible and home working to increase – with a five-fold increase in home working expected by 2025.
Similarly, 98% of CFOs expect levels of corporate and individual taxation to rise, with 62% anticipating higher regulation of the corporate sector and 59% seeing the size and role of government in the economy increasing.
The fourth quarter survey took place between 2 and 14 December 2020 – so before new Covid restrictions announced on 19 December and the Brexit deal on 24 December.
Two thirds of CFOs saw a no-deal outcome as having a severe or significant negative effect on the economy and 18% expected a similarly negative impact on their own business.
A majority (61%) of CFOs expect the post-Brexit points-based immigration system to act as somewhat of a drag on long-term economic growth, while 27% expect little or no effect and 6% expect the new immigration system to support growth.
A net balance of 66% of CFOs expect both goods and services trade with the EU to decrease, while 77% expect a decrease in high-skilled immigration from the EU – with only 24% expecting an increase in skilled immigration from outside the EU.
CFOs remain in defensive mode with 49% and 46% respectively rating increasing cash flow and reducing costs as strong priorities.
Meanwhile expansionary strategies have risen in popularity slightly, for example, around a quarter (28%) cite introducing new products, services or expanding into new markets as a priority for the year ahead.
Steve Williams, senior partner for Deloitte in Scotland and Northern Ireland, said: “The UK-EU trade deal ends over four years of uncertainty for business and is a far better outcome than the alternative of no-deal – nonetheless, CFOs also recognise the challenges that leaving the EU may pose in the years ahead.
“The UK deal has very limited provisions for services, particularly for professional and financial services,” he continued, adding that these high productivity sectors are major UK successes and make vital contributions to jobs and prosperity.
“UK businesses urgently need additional clarity on key issues including financial equivalence as well as more information on the specific changes to other cross-border trading services.”