The 2010 second quarter Deloitte Chief Financial Officer Survey, published a short while ago, indicates that recent volatility in financial markets and concerns about fiscal tightening at home and abroad have weighed on UK CFO sentiment. Optimism among UK CFOs has declined for the second quarter running, reaching a 12 month low. CFOs now see a 38% chance of a “double dip”, up from 33% in the first quarter of this year.
While the external environment looks less positive, some pressures on corporates’ balance sheets are easing, says Deloitte. CFOs are more bullish about prospects for their own operating cash flow than at any time in the last two years. Financial risk appetite among CFOs has not, so far, been dented by doubts about the recovery. Crucially, credit conditions are getting better. CFOs’ sentiment about credit availability is now at the highest level since the survey started in the third quarter of 2007. Bank borrowing has regained its pre-recession appeal to CFOs as a source of funding. CFOs see a more attractive and available supply of bank credit driving growing demand for bank borrowing over the next year.
Cost control remains the top priority for UK CFOs, as it has been for the last two years. With fears of a double dip increasing, CFOs are maintaining a strong focus on costs. Yet cash flow is no longer the central pre-occupation that it was and has dropped down CFOs’ list of priorities. Expansionary strategies, including capital spending, expanding into new markets and launching new products and services, have shifted up the priority list.
CFOs see fiscal tightening bringing more direct risks than benefits for UK corporates. Two thirds of CFOs expect tighter fiscal policy to have negative effects on their companies, particularly relating to concerns about reduced consumer spending and job losses in the public sector. Despite this gloom, 31% foresee benefits in the long term, such as a reduction in business red tape and a lower tax burden.
