Financial services firm Deloitte has warned that uncertainty over June’s EU referendum is already leading to a UK economic slowdown with CFOs of the country’s biggest blue-chip firms putting the brakes on spending and recruitment.
According to the Deloitte CFO Survey for the first quarter of 2016, 120 FDs in the FTSE 350 ranked the referendum as the biggest risk their businesses face ahead of economic weakness in the Eurozone, weak demand in the UK and the prospect of higher interest rates in the UK.
Deloitte said the “unsettling effect” of the referendum was impacting business sentiment with 83% of CFOs stating that the level of uncertainty facing their business is above normal, high or very high – that’s up from 64% in the last quarter of 2015 and the highest level since the end of 2012.
Three-quarter of CFOs said now was a bad time to take risk onto their balance sheets, again the highest level since the end of 2012.
CFOs said they are focusing on defensive balance sheet strategies, with just 18% planning to increase hiring within their companies, down from 40% in the last quarter of 2015. A total of 40% said cost reduction was a strong priority, with just 18% saying expansion through acquisition was a key focus.
Just over three-quarters, 77%, said it was also a bad time for UK firms to issue equity, with only a quarter declaring that equity offers an attractive source of external funding at present.
David Sproul, senior partner and chief executive of Deloitte, said: “Our survey shows declining risk appetite among CFOs, with the referendum rated as the top risk their business faces, and we have seen a marked slowdown in M&A activity as businesses put plans on hold for now. While voices on both sides of the debate argue about the potential economic impact of a ‘leave’ vote, the referendum appears to already be contributing to a slowdown.”
The survey found that CFOs were increasingly in favour of remaining in the EU with 75% stating it was in the best interests of UK businesses for the country to remain in the EU. That’s up from 62% in the final quarter of 2015.
A total of 8% said UK businesses would benefit from leaving the EU, up from 6% in the final quarter, with 17% uncertain of their position or preferring not to reveal their intentions.
An overwhelming 89% of CFOs said EU membership had helped UK export performance with 86% stating that it has attracted foreign direct investment. Just under three-quarters, 71%, said EU membership has contributed to the success of UK financial services with 68% stating it had boosted the UK’s influence and connections with the rest of the world.
Despite this only a quarter has so far made or is in the process of making contingency plans for a possible Brexit, with 53% declaring that they had made no plans whatsoever.