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HERE is an odd feel to the business community right now. Spring is the air, which is always a good sign, but there’s also a strong sense of confidence returning.
This is borne out by the regular Deloitte survey of chief financial officers, which shows their mood is at its most buoyant since 2020.
Concerns about energy prices and practical problems dealing with Brexit have eased. So, 25% more chief financial officers feel better about the future than worse, compared to 17% more feeling the opposite three months ago. That represents the biggest swing since the lift from the launch of the rollout of the Covid vaccine.
Energy costs have fallen since the beginning of the year; under Rishi Sunak relations with the EU have improved; and we’ve had a relatively stable period in politics. Sunak has proved a calming influence at Number 10, and the chaos engendered by the Truss and Johnson regimes has disappeared, so that the roller-coaster ride is no more. There’s been some rare, post-Brexit cheer with the landmark and highly promising joining of the Indo-Pacific trade pact.
The Deloitte poll was conducted in the aftermath of the collapse of Silicon Valley Bank and the forced takeover of Credit Suisse. Still, that failed to dampen optimism. If anything, the banks in crisis supplied something of a boost since the response from governments and the industry was so quick and effective (although not without lasting legal ramifications in the case of Credit Suisse).
On the economy front, things have not turned outside so bad. We were predicted doom and gloom, but that simply has not happened. In January, the International Monetary Fund was forecasting 0.6% shrinkage for the UK economy this year. Now the IMF is saying 0.3%, which is poor but not that poor, and a move in the right direction.
Even more marked, however, is the prediction from the EY Item Club this week of 0.2% growth for the UK, versus its previous estimate of a likely contraction of 0.7%. Yes, growth. This really is good news.
Why then, given that CFO’s feel so chipper is everyone else so downbeat? Because that is the prevailing atmosphere within business. Partly it’s because those finance heads surveyed belong to the bigger companies with global operations and they’re stronger placed to weather any storms than their smaller brethren.
They’ve got departments devoted to working through the machinations of Brexit and wading through the bureaucracy, whereas SME’s struggle to cope. They’ve moaned about lacking skilled recruits and having job vacancies, but it’s noticeable how many larger firms are now promoting impressive, resource-backed, hiring and apprenticeship programmes – again, not an option available to the tiddlers. Among the smaller enterprises, insolvencies remain on an upwards line.
Ian Stewart, chief economist at Deloitte, says that “In many ways it mirrors what we are seeing at household level. The difference between the haves and the have nots is widening.”
The comparison with households is apposite. Certain, in the more affluent areas of the capital and outside London you would not know there is any hint of economic malaise – restaurants and bars continue to do roaring trades, even with increased charges and worker shortages.
Another reason is that while the CFO’s are more encouraged, they’re not rushing to splash out. Quite the reverse. They’re focusing on cutting costs and amassing their cash reserves. That’s because while they are feeling more hopeful, they don’t think we’re out of the woods yet, there are too many uncertainties that could yet set us back.
The war in Ukraine displays no sign of ending any time soon; yes, energy prices have reduced and while we’re experiencing warmer weather, looking ahead, there’s next winter and who knows what that might bring; inflation is dipping but the downside of bringing it under control may be to push us and other nations into recession; there may be conflict between China and Taiwan and the fallout does not bear thinking about. It’s quite a list already, but did anyone mention the hurtling progress of AI and the problems that might bring?
Perhaps as well, the problem with the Deloitte study is that they chose CFOs. When did you ever see a cheery CFO, one who bounced into a room and gave reasons as to why the proposed piece of spending must happen, as opposed to why it mustn’t? Deloitte should ask the sales and marketing folk, they’re always upbeat, will never admit to anxiety and will flog you anything. Problems, what problems?
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