Spending by UK businesses is set to surge in the coming months, according to Deloitte’s UK CFO Survey for Q2 2021.
In a shift away from last year’s top priority of cost reduction, more than three-quarters of CFOs (71%) expect rises in capital expenditure and 76% anticipate increases in hiring in the year ahead – with expectations for both at their highest levels in almost seven years.
Conducted between 16 and 29 June, Deloitte’s latest quarterly CFO Survey captured sentiment among the UK’s largest businesses during the third lockdown.
Some 107 CFOs participated, including those from 21 FTSE 100 and 43 FTSE 250 companies. The combined market value of the 69 UK-listed companies that participated is £548bn, about 21% of the UK quoted equity market.
Expansion plans
According to the report, CFOs are now placing greater emphasis on expansionary strategies, with 41% rating introducing new products and services, or expanding into new markets as a strong priority.
Meanwhile, 30% rate expanding by acquisition and 22% rate increasing capital expenditure as a strong priority over the next 12 months. M&A seems set to play an outsized role in reshaping the business landscape, with CFOs rating expansion through acquisition a higher priority than at any time in the past 11 years.
Cost reduction, a key priority for CFOs since the start of the pandemic, is now a lower priority than at any time in the past seven years.
Post-pandemic trends and a return to growth
In a post-pandemic recovery featuring low interest rates, rising demand and the government’s super-deduction, an overwhelming majority (89%) of CFOs said they expect to increase investment in digital technology and 83% predicted gains in business performance and productivity.
As vaccinations enable a gradual reopening of the economy and a strong rebound in activity, 41% of CFOs reported that demand for their business has already returned to pre-pandemic levels, up from 27% in Q1.
More than half (57%) either reported a full recovery in demand or expect to do so by the end of the year.
Ian Stewart (pictured), Chief Economist at Deloitte, commented: “With the economy reopening, CFOs’ perceptions of external uncertainty have dropped below the average of the past five years and businesses have tacked away from the defensive strategies that helped them through the downturn.
“The pandemic, like all major shocks, will reshape the economy and we are likely to see years of normal growth compressed into just a few months.
"Indeed, eight in 10 CFOs believe productivity will run higher in the wake of the pandemic. That offers the hope of a more comprehensive recovery than after the global financial crisis.”
Hiring, risk and inflation
CFOs described a challenging environment for sourcing labour as corporates respond to rising demand. More than three-quarters reported a rise in recruitment difficulties or skills shortages over the past three months.
For the first time, the survey asked CFOs to rank the risk of the long-term effects of climate change on their businesses. While Brexit has dropped down the risk list, the pandemic remains, by a slim margin, the biggest concern for CFOs, with rising inflation and climate change also in the top three.
Inflation has been assigned the highest risk rating since the question was first asked in 2014.
Nearly a third of CFOs expected inflation to be above 2.5% in two-years’ time, a sharp rise from 13% in Q1, and CFOs expectations for a rise in operating costs have hit a 10-year high.
• To view the report click here