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LONDON (Reuters) - Major British firms are preparing for a recession by focusing on cost-cutting but their investment plans remain strong which suggests they do not fear a severe downturn, according to a survey by accountants Deloitte.
Nearly two thirds of chief financial officers quizzed by Deloitte thought a recession was coming in the next 12 months caused by the surge in inflation which almost 90% of the CFOs said would exceed 2.5% in two years' time.
That represented a sharp slowdown in price growth of more than 9% now, but was the highest share since the question was first asked in 2013.
Higher input costs were being passed on to clients although companies were also cutting profit margins.
The Bank of England is watching closely for signs that high inflation is becoming embedded in the economy and it has signalled that it is prepared to raise interest rates by more than its usual quarter percentage-point moves if needed.
Most of the CFOs thought the BoE would double rates to 2.5% over the next 12 months.
Cost reduction was the top priority for the executives taking part in the quarterly survey, which is often cited by the BoE in its reports on the British economy.
Ian Stewart, chief economist at Deloitte, said companies were building up cash as they prepared for a recession.
But their investment intentions, while lower than in recent surveys by Deloitte, were higher than in the run-up to previous sharp downturns in the economy.
"They're certainly expecting tough times ahead but there are elements which also suggest that they're looking through that," Stewart said.
"Given developments in the last three months and the scale of the change in expectations for growth, you might have expected a bigger move."
The survey showed that worries about Brexit had been revived by Prime Minister Boris Johnson's push for unilateral changes to the trading rules for Northern Ireland which raised the prospect of trade tensions with the European Union.
The survey of 77 CFOs - 15 of them from FTSE 100 firms and 32 from FTSE 250 companies - was conducted between June 16-30.
(Reporting by William Schomberg)