LONDON—Pessimism over Brexit among top UK companies has climbed to its highest since the public voted to leave the European Union, according to a quarterly survey by Deloitte.
The survey of 103 chief financial officers of major companies in the UK, including 20 FTSE 100 companies showed “a marked shift towards more defensive balance sheet strategies” as the EU and UK head into the final months of negotiations ahead of Brexit.
The quarterly survey showed that CFOs again ranked Brexit as the biggest risk, with concerns about weak UK demand in second place.
“Uncertainty about the timing and the nature of the Brexit settlement has added to CFOs’ worries about the final destination of the Brexit process,” said Ian Stewart, chief economist at Deloitte in a statement.
“Three-quarters expect Brexit to lead to a deterioration in the business environment in the long term, the highest proportion since we asked this question in the immediate aftermath of the referendum in late June 2016,” according to the survey.
UK Prime Minister Theresa May is trying to pitch a detailed Brexit plan to her cabinet, which is fractured over what hand to play in negotiations with the EU.
EU negotiators are warning the UK that time is tight to forge a deal ahead of the October deadline, which was set to allow time for the EU member states to vote on approval of the deal.
European Council President Donald Tusk said that the “most difficult” issues were unresolved and “quick progress” was needed if an agreement was to be reached.
Earlier this year, business confidence was boosted by the announcement of a transition deal to smooth out potential disruptions to trade between the EU and UK. The transition deal stipulates a period during which the complex web of EU trade regulations would apply even after the UK has left the trading bloc, allowing more time to align post-Brexit regulation.
Stewart said, “The boost to CFOs’ spirits we saw in the last survey, following the announcement of the Brexit transition deal, has been short-lived. Brexit returns as the top risk facing their businesses and, signalling of a more challenging international backdrop, concerns around protectionism and a slowdown in the euro area have increased.”
He added, “CFOs are reacting with a sharper focus on cost control and building up cash, with UK corporates are running more defensive balance sheet strategies than at any time since late 2012, during the euro crisis.”
Forty percent of the CFOs intend to scale back their hiring plans, reports the survey, and those who plan on reducing capital expenditure over the next three years has risen to a third from a quarter in the last survey.
“Business sentiment continues to be buffeted by the news on Brexit,” said David Sproul, senior partner and chief executive at Deloitte. “The mid-year position of the UK corporate sector is defensive and watchful. How that changes over the rest of 2018 will be heavily dependent on the unfolding negotiations between the UK and the EU in the next six months.”
According to Deloitte, 103 CFOs participated in the survey, including the CFOs of 20 FTSE 100 and 45 FTSE 250 companies. The combined market value of the 76 UK-listed companies surveyed is £504 billion, approximately 19 percent of the UK quoted equity market.