According to Deloitte´s quarterly CFO survey, the concerns of CFOs in the UK about the impact Brexit will have on the future business environment are easing.

In June last year, citizens of the United Kingdom voted narrowly to exit the European Union. The decision to leave – termed “Brexit” – created a sense of uncertainty across the business environment not only for companies in the UK, but also for companies within the EU and those who trade with the EU.

However, in Deloitte´s Q1 2017 CFO survey, financial concerns appear to be softening. 20% of the 130 CFOs surveyed were more optimistic about the financial prospects for their companies than they were three months ago, and there was a significant shift in focus from defensive strategies to expansionary strategies.

Expand while Credit Conditions Remain Benign

One of the reasons for the shift in focus is that credit remains cheap and easily available – although there is uncertain confidence it will remain that way after the United Kingdom leaves the European Union. The surveyed CFOs said that debt finance remained the most attractive source of funding for the present, and that equity issuance has become more appealing as the result of stronger equity markets.

In relation to the cost of borrowing, most CFOs expect the current Bank of England base rate to increase from 0.25% to 0.50% within a year – although some believe it could reach 1.25% even before the full implications of Brexit are known. Because of the expected increase in the cost of borrowing, the majority of respondents to the survey expressed an opinion that operating margins would fall over the next twelve months.

Researchers Identify Decline in the Perception of Risk

In each quarterly survey, researchers ask CFOs for their perception in risk in eight key areas. In six of the eight key areas – the impact of Brexit and subdued domestic demand among them – Deloitte reported a decline in the perception of risk. The two areas in which the perception of risk had increased were:

  • The prospect of higher interest rates and a general tightening of monetary conditions in the UK and US.
  • A bubble in housing and/or other real and financial assets and the subsequent risk of higher inflation.

David Sproul, Senior Partner and chief executive at Deloitte, remarked: “The UK’s exit from the EU is a long and uncertain process and business sentiment is changeable. But it is clear from this survey that the UK corporate sector enters the negotiation phase of Brexit in far better spirits than seemed likely in the months after last year’s referendum vote.”