FTSE finance chiefs: Rates, inflation and growth squeeze C-suite confidence
Ratcheting up interest rate expectations and intense fears about sticky inflation has hobbled FTSE finance chiefs’ optimism, a closely watched survey out today shows.
Confidence among chief financial officers (CFO) of FTSE-listed companies has tumbled over the last quarter, according to consultancy Deloitte.
Optimism among money managers at Britain’s largest businesses has eroded to net minus 10 per cent, signalling they are deeply concerned about their firm’s and the UK economy’s health. It is a big drop from last quarter’s reading of positive 25 per cent.
The survey of 69 CFOs – including those at FTSE 100 and FTSE 250 businesses – which manage the coffers of firms with a combined market value of £317bn indicates the recent surge in interest rate bets is chilling the UK economy.
Markets think the Bank of England is on track to lift the UK’s official interest rate to a peak of around 6.25 per cent from its current level of five per cent.
They also think there is an around 60 per cent chance of a larger 50 basis point increase at the Bank’s next meeting on 3 August.
Higher interest rates make it more expensive for companies to borrow, which tends to curb investment and day-to-day business activity. This typically squeezes economic growth. The Office for National Statistics last week said the UK economy stalled in the three months to May.
Deloitte said 45 per cent of CFOs think high borrowing costs and their impact on GDP is a very high risk to their business, up from 39 per cent in the first three months of the year.
“Tight monetary policy is seen by CFOs as the top threat to their business, outweighing the concerns around geopolitics and energy prices that have dominated for the last two years,” the report said.
Inflation is still expected to be plaguing company finances in two years, with CFOs forecasting the UK rate to be 3.6 per cent in 2025, up from 2.9 in Deloitte’s previous survey. It is currently 8.7 per cent.
Elevated inflation expectations have also lifted interest rate bets. CFOs think rates will be 4.5 per cent in a year, up from 3.75 per cent.
The research was carried out at the end of June, meaning it did not capture the steep rise in mortgage rates since the start of July. Average rates on short-term fixed mortgages are now above their post mini-budget highs at around 6.6 per cent.
Ian Stewart, chief economist at Deloitte, said: “The burst of business optimism seen in the spring has faded under the weight of inflation and rising interest rates.”
In response to pressure on their bottom lines, CFOs are mulling cutting costs to protect profits, which typically means redundancies or stemming recruitment.
A little over four in ten CFOs think their firm will mothball hiring over the next year. Wage settlements are tipped to fall to 4.7 per cent over the next 12 months from over six per cent in the last year, Deloitte said.
Separate research suggests UK businesses are holding up better amid the interest rate and price crunch. Consultancy Accenture said today a net positive 40 per cent of UK companies think activity will grow over the coming year, better than the 19 per cent registered on the continent.