By Scott Wright
SURGING inflation and geopolitical tension means the level of risk facing businesses now is greater than at any time in the last eight years, it has been declared.
The warning comes today from accounting giant Deloitte after the concerns of leading UK finance chiefs were highlighted against the backdrop of war in Ukraine, global supply chain disruption, and the deepening cost-of-living crisis.
A survey of nearly 100 chief financial officers, carried out by Deloitte between March 16 and 30, saw bosses report that risk was at a record level because of geopolitics and inflation, which hit 7% in March and is forecast by the Bank of England to climb higher still. Nearly every finance chief (98 per cent) said they anticipate operating costs to rise in the year ahead, with neatly half (46%) expecting these rises to be significant.
The expectation of rising costs has caused a sharp deterioration in the outlook for corporate margins, Deloitte’s UK CFO Survey Q1 2022 found, as a majority of CFOs (71%) said they believe operating margins will fall over the next 12 months, compared with 44% in the previous quarter. However, three-quarters of CFOs expect revenues to rise over the next year. Capital spending remains a strong priority for 21%: while this was down from last quarter’s record high of 37%, it was above the five-year average of 14%.
The survey, which 89 CFOs responded to, found Russia’s invasion of Ukraine had heightened the level of financial and economic uncertainty facing businesses, with geopolitics rising sharply as the top risk facing businesses. More than half of CFOs said the level of uncertainty is high or very high.
Meanwhile, 78% said they expect to inflation to exceed 2.5% in two years’ time, signalling scepticism over the Bank of England’s bid to restore inflation to its 2% target.
Ian Stewart, chief economist at Deloitte, said: “Rising geopolitical risk in the wake of the invasion of Ukraine and alongside high inflation mean that the external challenges faced by business are greater today than at any time in the last eight years. These risks now far eclipse Brexit and the pandemic, which have dominated the list of CFO concerns in recent years. Over the next year, CFOs believe a mix of rising costs and slower growth are set to squeeze margins. In spite of this, as finance leaders have become accustomed to navigating a more volatile business environment they remain focused on capital spending and growing their businesses.”
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