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Elections, EU referendum top risks for UK firms


A proposed referendum on EU membership and the upcoming general election are among the biggest risks facing financial chiefs of the U.K.'s top corporates, a Deloitte survey revealed on Monday.

Concerns created by politics have overtaken worries over economic uncertainty, with the U.K. general election in May 2015 and uncertainty surrounding the country's membership of the European Union (EU) topping the list of risks felt by chief financial officers (CFO) of Britain's largest companies.

An improving macroeconomic picture in the U.K. as well as green shoots of recovery in the euro zone, have contributed to higher economic confidence levels among CFOs with less than half of the 112 finance heads worried about asset bubbles or a renewed euro crisis. Only 7 percent of CFOs fear the euro breaking up, the lowest reading since 2011.

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"There is simply less economic risk out there," Ian Stewart, chief economist at Deloitte, told CNBC in a phone interview.

"I think the results are a combination of the proximity to the general election and the focus on the EU and the fact that economics is much less of concern."

Ben Stansall | AFP | Getty Images

British politics has been dominated by debate over the country's relationship with the EU. Prime Minister David Cameron's Conservative party was shaken in May when UKIP, an anti-EU right wing party, won the European elections. Cameron has promised an in/out referendum on EU membership if his party wins the general election in 2015.

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Spending on the rise

Companies are becoming more bullish on spending, expecting profitability and hiring to rise. Expectations among CFOs of a rise in revenues and operating margins have hit four-year highs, while just under two thirds (65 percent) said now is a good time to take risk.

During the financial crisis corporates paid down debt and held cash to bolster their balance sheet, but increased bank lending and a greater risk appetite have driven business expansion with 34 percent looking to introduce new products and services or expand into new markets. The number of CFOs carrying out defensive strategies such as reducing costs has fallen.

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"For the last six years companies have protected themselves against risk, and they have done that by focusing on their balance sheet but that is now reversing and we are seeing that switch from defensiveness to spending," Stewart said.

"You've got cheap capital, high risk appetite and low yields on safe assets like treasuries. This is a typical environment where mergers and acquisitions will increase."

- By CNBC's Arjun Kharpal