Around 98% of finance leaders anticipate operating costs to rise in the year ahead, a new survey has revealed, according to Deloitte’s UK Chief Financial Officer (CFO) Survey for quarter one in 2022.
Almost half of CFOs (46%) expect these rises to be significant. In light of cost increases, there has also been a sharp deterioration in the outlook for corporates’ margins.
A majority of CFOs (71%) believe operating margins will fall over the next 12 months, compared to 44% in the previous quarter.
However, three-quarters expect revenues to rise over the next year.
Meanwhile, capital spending remains a strong priority for 21% of CFOs, even with a more challenging operating environment.
Although this has dropped from last quarter’s record high (37%), it remains considerably above the five-year average of 14%.
Conducted between 16 and 30 March 2022, Deloitte’s latest quarterly CFO Survey captured sentiment amongst the UK’s largest businesses.
The latest survey saw 89 CFOs participate, including CFOs of 22 FTSE 100 and 34 FTSE 250 companies. The combined market value of the 58 UK-listed companies that participated is £526bn, approximately 20% of the UK quoted equity market.
The invasion of Ukraine has heightened the level of financial and economic uncertainty facing businesses.
More than half of CFOs (56%) say that the level of uncertainty facing their business is high or very high, it revealed.
It found that more than three-quarters of CFOs (78%) expect inflation to exceed 2.5% in two-years’ time – the highest reading on record.
Meanwhile more than half (53%) expect inflation to settle between 2.5% and 3.5% in two-years’ time and a quarter expect it to remain above 3.5%.
CFOs expect interest rates to rise substantially over the next 12 months. On average, they expect the Bank of England’s base rate to be 1.5% in a year’s time, double its present level of 0.75%, but below current financial market expectations.
It found that about 35% of finance leaders report that their businesses have faced significant or severe recruitment difficulties in quarter one – a slight improvement from quarter four in 2021, which was 46%.
It found that CFOs anticipate labour shortages will persist, with around one in four saying these will be significant or severe in a year’s time.
In the first quarter, more than a quarter of CFOs reported significant or severe levels of supply chain disruption.
Ian Stewart, chief economist at Deloitte, said: “Rising geopolitical risk in the wake of the invasion of Ukraine and alongside high inflation mean that the external challenges faced by business are greater today than at any time in the last eight years. These risks now far eclipse Brexit and the pandemic, which have dominated the list of CFO concerns in recent years. Over the next year, CFOs believe a mix of rising costs and slower growth are set to squeeze margins.
“In spite of this - as finance leaders have become accustomed to navigating a more volatile business environment - they remain focused on capital spending and growing their businesses.”
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