Risky Business: UK Companies Go for Growth
An increasing number of British chief financial officers (CFOs) believe now is the time to take risk onto their balance sheets amid a shift towards expansionary strategies, according to new research by Deloitte.
Some 45 percent of CFOs said now is a good time to take risk onto their balance sheets - the highest level in six years and over double the level of a year ago – according to the financial services firm. This was mirrored by a reduction in the number of CFOs placing emphasis on cost reduction: only 34 percent said the issue was a matter of priority, down from 42 percent in the first quarter.
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On the macroeconomic front, 73 percent of CFOs said their businesses faced an above normal, high or very high level of external macroeconomic uncertainty – a fall from a high of 97 percent at the end of 2011.
Those surveyed were also more positive about the euro zone's prospects, according to Deloitte, rating the chance of a euro zone break-up at 9 percent, down from 36 percent a year ago. While only 23 percent said they were worried about a U.K. recession within the next two years, a significant drop from 47 percent in 2012.
Ian Stewart, chief economist at Deloitte, said: "Business optimism has been improving for some time but our latest survey shows that CFOs are translating this confidence into action. Rising risk appetite and a shift towards expansion show that large UK corporates are increasingly planning for growth."
Stewart stressed that CFOs at U.K.-facing companies were at their most expansionist for two years. "These companies have been consistently more defensive than their international facing peers in the last two years. Their shift towards more pro-growth strategies is a sign of an improving UK outlook," he said.
His comments follow strong Purchasing Managers Index data and a British Chambers of Commerce business survey, which led JPMorgan to significantly revise its growth forecast estimates for the U.K. The investment bank increased its forecast from 1.2 to 1.6 percent for 2013, and from 2 to 2.6 percent for 2014.
The International Monetary Fund (IMF), which downgraded its U.K. growth forecasts earlier this year, is also expected by analysts to revise up its forecasts following the encouraging data.
"Current forecasts from the IMF, OECD and OBR are suddenly starting to look overly pessimistic," Markit's chief economist Chris Williamson told CNBC on Monday. "Especially as survey gauges of order books suggest that robust growth momentum will have been carried over into the third quarter."