By Daniel Hunter
Business confidence among chief financial officers (CFOs) has improved for the third consecutive quarter, according to the latest Deloitte CFO Survey.
Rising equity markets, exceptionally easy monetary policy and improving financial conditions have contributed to a more positive mood among major UK companies.
The Q1 2013 CFO Survey, which gauges the views of 120 chief financial officers, including those from 26 FTSE 100 and 44 FTSE 250 companies, shows that CFOs’ perceptions of macroeconomic and financial uncertainty have dropped to the lowest level for two and a half years. 23% of CFOs say their business faces a high level of external uncertainty - the lowest level since Q2 2011 (21%).
Despite the bailout of Cypriot banks last month, CFOs have become more confident that the euro area will hold together. CFOs believe there is just an 18% chance that the euro will break up in the next 12 months, half the level (36%) seen in Q2 2012.
Corporate risk appetite is rising. 34% of CFOs say now is a good time to take risk on to their balance sheets, compared to 25% in Q4 2012 and 13% in the final quarter of 2011.
Credit conditions for large companies have improved for the third consecutive quarter. Over two-thirds (69%) of CFOs say that credit is more readily available, 60% rated credit as cheap and 67% say that bank borrowing is an attractive source of lending, the highest levels recorded since the CFO Survey started in Q3 2007.
The economic uncertainty of recent years has led CFOs to adopt defensive balance sheet strategies such as cost control and increasing cash flow. But in the first quarter, CFOs have reduced the emphasis on these strategies. The proportion of CFOs prioritising cost control dropped from 50% in Q4 2012 to 42% in Q1 2013 and those prioritising raising cash flow dropped from 49% to 39%.
“Despite the gloomy coverage around the UK Budget and the crisis in Cyprus, CFOs believe that that the level of economic and financial risk facing their businesses has declined. Corporate appetite for risk is not far off the peaks seen in early 2011 when Europe looked set for a sustained recovery," Ian Stewart, chief economist at Deloitte, said.
“Reduced stress in financial markets, especially in the euro area, has delivered improvements in credit conditions for big UK corporates. It is a measure of the change that CFOs now rate bank borrowing as offering a more attractive form of finance than at any time since the start of the financial crisis.
“CFOs have had to adapt to high levels of macro uncertainty in the last five years, which has had a pronounced effect on the way businesses are run. Sustained declines in uncertainty offer the prospect of stronger corporate activity to come. Our index of corporate defensiveness, having trended higher for two and a half years, has declined sharply.
“British business look set to benefit from a less risky and improving global economic backdrop. UK-based businesses with strong overseas exposure have become much more willing to take risk and are shifting towards more expansionary policies. UK-focused businesses have become more optimistic, but remain defensive when compared to businesses focused on overseas markets.
“Business confidence has zigzagged in recent years in response to the good and bad news from the economy and financial markets. This quarter’s survey shows a surprisingly broad-based rise in confidence among the UK’s largest businesses.”
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