Business confidence has seen its largest quarterly fall on record, having previously bounced back in the wake of the general election.
Deloitte’s CFO survey for the first quarter of 2020, which gauges sentiment amongst the UK’s largest businesses, took place between 8 and 22 April after the lockdown was in place.
Out of a total of 104 CFOs, 84% said that they are less optimistic about the prospects for their company than they were three months ago. This is the lowest business confidence reading on record and, in stark contrast to the last quarter of 2019 where a majority (53%) of CFOs said they were more optimistic about the financial prospects of their company.
Business sentiment around revenues has fallen markedly. Nearly all (97%) of the CFOs said they expect UK corporates’ revenues to decrease in the coming 12 months. They expect their own businesses’ revenues to be 22% lower on average this year than estimated in their pre-COVID-19 plans.
CFO perceptions of external uncertainty have risen to the highest level in the history of the survey. The majority of CFOs surveyed (89%) now feel there is a high or very high level of uncertainty facing their business, a sharp increase compared to 34% in the previous quarter.
Coronavirus has also dramatically reduced the risk companies are willing to take. The survey found 94% of CFOs are unwilling to take risk onto their balance sheets. This is the second-lowest reading for risk appetite on record, the lowest level having been observed during the 2008 financial crisis.
Almost all CFOs (98%) expect UK corporates to reduce capital expenditure in the next 12 months, in contrast to 38% anticipating an increase at the end of last year. Hiring expectations are also significantly more pessimistic, with 98% of CFOs expecting a slowdown in hiring in the next year.
Meanwhile, 53% of CFOs are expecting the UK economy to see a deep and prolonged economic downturn that lasts until the end of 2020.
Most CFOs expect demand in their own sectors to start to revive later this year. However, over half (53%) do not expect demand to recover to pre-pandemic levels until after the second quarter of 2021.
Ian Stewart, Chief Economist at Deloitte, commented: “The COVID-19 pandemic has seen business confidence drop from an all-time high to an all-time low in just three months. CFOs expect the lockdown to ease in May and June and demand in their own sectors to start recovering later this year.
“But there is no expectation of a quick snap back in activity, with most CFOs assuming revenues will not return to pre-crisis levels for at least a year.”
Looking ahead to the long-term impact of the outbreak, 97% of CFOs believe the crisis will lead to an increase in pandemic planning, while 89% believe it will lead to a diversification and strengthening of supply chains. CFOs also believe the post-COVID world will see a greater role for the state and higher levels of corporate and household taxation.
