Increased caution from finance chiefs over financial markets

News Article - 19 April 2011
Category: Business

Rising inflation and austerity are being blamed for the lowest levels of optimism amongst finance directors of Britain's largest companies in two years.

Eighty per cent of finance chiefs predicted a reduction in potential profits for 2011 due to budget cuts according to a recent survey by Deloitte.

However, directors, on balance, remain optimistic about their company's financial prospects, but less so than at the beginning of the year.

Margaret Ewing, Deloitte vice-chairman said: "Reduced optimism among finance chiefs seems to be influenced by external events, such as conflict in the Middle East and the earthquake in Japan, and movements in financial markets."

Despite increased caution from chief financial officers nationwide, 41 per cent of chiefs surveyed admitted it was still a good time to take risk onto balance sheets, while a similar number revealed they would be considering entering new markets and providing new goods and services.

Credit availability is now as attainable as it was back in 2007 before the height of the credit crunch, with finance directors making the most of bank borrowing and bond issuance to accelerate business growth.

Ian Stewart, Deloitte's chief economist, revealed large corporates "do expect revenues to rise over the next 12 months and are actively seeking growth opportunities".

Chief Financial Officers (CFOs) are nowhere near as confident as the Bank of England that inflation will fall, with many believing there is less than an even chance of inflation dropping to the Government's two per cent target set over the next three years.

This is despite the recent unexpected drop in inflation which helped to ease the pressure on cash-strapped consumers and businesses. The drop in inflation was attributed to supermarket price cuts enforced to appease consumers, although the Bank expects inflation and interest rates to rise later in the year when petrol and other commodity prices impact upon consumers.

After weak data in manufacturing, retail and construction, economic analysts forecast that the 0.8 per cent Q1 growth predicted by the Bank and the Office for Budget Responsibility will by more like 0.2 per cent in reality.

Article keywords: inflation, finance director, FD, Deloitte, Margaret Ewing, credit crunch, bank borrowing, bond issuance, Ian Stewart, Chief Financial Officer, CFO, Bank of England, economic data

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