Record number of finance chiefs forecast cost hikes, Deloitte report finds

Virtually all finance leaders – a record level – expect operating costs to rise in the year ahead, according to a report from Deloitte, which however also found that firms remain driven and focused on growing their businesses.

The Big Four accountancy giant has today revealed its latest UK CFO Survey, for the first quarter of 2022 and sharing the views of chief financial officers from firms worth a collective £526 billion.

It found that 98 per cent of respondents forecast the cost jump, and 46 per cent expect such rises to be significant, with a sharp deterioration in the outlook for corporates’ margins. About seven in ten finance bosses believe operating margins will fall over the next 12 months, up from 44 per cent in the previous quarter, although three quarters expect revenues to step up over the period.

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Meanwhile, capital spending remains a key priority for just over a fifth of CFOs, despite the more turbulent operating environment. This has dropped from last quarter’s record high of 37 per cent, but remains considerably above the five-year average of 14 per cent.

The survey was conducted between March 16 and 30, with 89 CFOs taking part, including those at 22 FTSE 100 and 34 FTSE 250 companies. The combined market value of the 58 UK-listed companies that participated represents about 20 per cent of the UK quoted equity market, Deloitte added.

The invasion of Ukraine has heightened the level of financial and economic uncertainty facing businesses, and 56 per cent of survey respondents reported that the level of uncertainty facing their organisation was high or very high.

Deloitte added that, with the exception of the pandemic during the second and third quarters of 2020, the risk rating assigned to geopolitics was higher than any other since the question was first asked in 2014. Rising inflation, the prospect of further interest-rate rises, and persistent labour shortages were also among top CFO concerns.

Almost half of finance leaders believe operating costs will rise in the year ahead, according to the survey. Picture: Getty Images/iStockphoto.

Such executives anticipate that labour shortages will remain, with around one in four believing that these will be significant or severe in a year’s time, and more than three quarters expect inflation to exceed 2.5 per cent in two years’ time – the highest reading on record – while a quarter expect it to remain above 3.5 per cent.

Rising geopolitical risk and high inflation are “greater today than at any time in the last eight years”, according to Deloitte’s chief economist Ian Stewart.

Dominated

“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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Richard Houston, senior partner and CEO of Deloitte, said: “It’s clear that businesses are operating in an increasingly uncertain and challenging economic and geopolitical environment. However, CFOs are not reporting a widescale shift to defensive strategies, such as cost-cutting, seen at the beginning of the pandemic.

"Introducing new products, services, or entering new markets remain the top balance-sheet priorities. This continued focus on investment will be vital for resilience moving forward.”

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