Post-Referendum industry optimism lower than in financial crisis

There is less optimism in the boardrooms of UK companies today than there was at the height of the 2008 financial crisis, according to a Deloitte survey.

Related topics:  Finance News
Rozi Jones
18th July 2016
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"Sentiment among the Chief Financial Officers of the UK’s largest corporates has fallen sharply in the wake of the EU referendum"

Deloitte said a spike in uncertainty has had a "toxic effect on business sentiment" with optimism dropping to the lowest level since the survey started in 2007, lower than in the wake of the failure of Lehman Brothers in late 2008.

The survey shows that "sentiment among the Chief Financial Officers of the UK’s largest corporates has fallen sharply in the wake of the EU referendum".

Corporate willingness to take risk has also seen its largest ever decline. Just 8% of CFOs say now is a good time to take risk onto their balance sheet.

When asked what effect they expected an exit from the EU to have on their own spending plans over the next three years, 58% of CFOs expected capital spending to be somewhat or significantly lower and 66% expected hiring to be lower over this period.

Additionally, Deloitte said that "CFOs do not seem to be waiting for growth to slow before adjusting direction", noting that there has already been a marked shift to more defensive balance sheet strategies in the wake of the referendum.

The report said: "For the first time in more than a year the top two balance sheet priorities for major UK corporates are defensive - reducing costs and increasing cash flow.

"More than two-thirds of our CFO panel believe that leaving the EU will lead to a deterioration in the UK business environment in the long term. About 20% expect little change and 12% expect an improvement."

However the survey showed that although the UK’s vote to leave the EU came as "a surprise to financial markets", the shock seen in the immediate aftermath of the result has not been as large as that which followed the collapse of Lehman Brothers in September 2008.

While sterling has fallen faster, UK equities have proved more resilient. Consumer confidence recorded its sharpest monthly fall in almost 22 years in July but remains much stronger than in the aftermath of Lehman Brothers’ collapse.

David Sproul, senior partner and chief executive of Deloitte, said: “The outcome of the EU referendum has triggered a sharp, negative response from the corporate sector.

“This survey was conducted immediately after the referendum, against a backdrop of historical political upheaval and financial uncertainty. The faster-than-expected appointment of a new prime minister removes one source of uncertainty, now the government must set out its vision for the UK’s future relationship with the EU to provide further stability and reassurance.”

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