Almost two thirds (63%) of finance leaders are expecting a recession next year as the economy is battered by rising inflation and intensifying economic headwinds.
According to the latest UK CFO survey from business consultants Deloitte more than two-thirds of those surveyed (68%) believe high inflation will continue, anticipating it to remain higher for longer, and to exceed economists’ expectations.
The majority of CFOs (86%) now expect inflation to exceed 2.5% in two-years’ time (up from 78% in the first quarter of the year, the highest reading Deloitte has recorded.
More than a third (39%) think inflation will settle between 2.6% and 3.5% in two-years’ time and almost half (47%) expect it to remain above 3.5%.
CFOs’ expectations for interest rate rises have also sharply increased. They now anticipate rates to almost double over the next 12 months with the Bank of England’s base rate reaching 2.5% in a year’s time.
The outlook for operating margins also continues to deteriorate. The overwhelming majority of CFOs (87%) believe operating margins will be squeezed over the next 12 months.
This compares to 71% expecting a fall in operating margins during the first quarter of the year. However, 54% of CFOs expect revenues to rise over the next year.
More than a third (40%) of finance leaders report that their businesses have faced significant or severe recruitment difficulties during the second quarter, a slight increase from the first quarter of the year (35%). CFOs anticipate labour shortages will persist, with a third saying these will be significant or severe in a year’s time.
Ian Stewart, chief economist at Deloitte, said: “The CFOs of the UK’s largest companies are braced for a recession. Finance leaders have edged towards more defensive balance sheet strategies, particularly cost control and building up cash.”
Conducted between June 16 and 30 this year, Deloitte’s latest quarterly CFO Survey captured sentiment amongst the UK’s largest businesses, against a backdrop of historic UK inflation rates and the sharpest tightening of monetary policy since the 1980s.