Companies cut budgets over election concerns

Britain's chief financial officers are increasingly concerned they could be facing unpalatable policy outcomes whoever wins the general election and are reining back on investment.

A clear majority (63 per cent) of CFOs responding to Deloitte's survey rated the level of uncertainty facing their business as above normal - the highest reading in more than two years.

The findings echo concerns from many in the City that British business could be faced either with increased regulation and tax if Labour win the election, or the threat of a destabilising in-out referendum on Britain's membership of the EU if the Conservatives emerge as the largest party.

Polls are still running neck and neck, with a hung parliament the most likely outcome, leading to a coalition government or a minority Labour or Conservative administration.

Ian Stewart, chief economist at Deloitte, said that, while the UK economic outlook has improved, for CFOs this has been offset by mounting political risk, with corporate risk appetite dampening and investment intentions softening.

"Risk appetite appears to have decoupled from its usual drivers, the economic outlook and equity market performance," he said, adding "this provides an ominous reminder that the business recovery is not assured".

The survey of 108 chief financial officers of FTSE 350 and other UK-listed companies, showed companies are responding with defensive strategies, with the top two corporate priorities for CFOs during the next 12 months being increasing cash flow and reducing costs.

Compared with the fourth quarter of last year, the survey found CFOs are placing less emphasis on expansionary strategies such as introducing new products or services, expanding by acquisition and capital expenditure.

A net 53 per cent expect UK corporates to increase capital expenditure during the next 12 months, down from a peak of 80 per cent a year ago.

David Sproul, chief executive of Deloitte, said the survey should provide "food for thought" for all parties.

"Whoever is in government after May 7 cannot take the business-led recovery for granted. There is a pressing need to provide business with certainty and stability in the coming years."

The findings echo those of other business surveys, with companies now increasingly concerned about politics rather than economic fundamentals such as inflation. Last week, a survey from the British Chambers of Commerce reported falling investment intentions from manufacturing and service companies.

Retail investors have also pulled money out of UK equity funds on a scale not seen since January 2008, partly because of election uncertainty, with investors worrying that markets have not priced in the potential volatility and turbulence that could ensue following the May election.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation