Finance executives in the United Kingdom are displaying increased wariness about borrowing, according to a recent survey by Deloitte. The survey, published yesterday, revealed that finance leaders at top UK firms are the most cautious about borrowing since at least 2007. The gap between chief financial officers (CFOs) who see bank borrowing as attractive and those who find it unattractive reached a net minus 37%, the widest margin since the survey was initiated 16 years ago. As a result, CFOs are turning towards equity finance as an alternative to debt sales.
The shift in sentiment towards borrowing can be attributed to the rise in interest rates, which is affecting both businesses and the broader economy. Ian Stewart, the chief economist at Deloitte, stated that the increase in interest rates has overturned a decade-long consensus that favored debt finance. He also warned that finance leaders are preparing for a period of high-interest rates, with only a slight decrease predicted in the coming year.
While concerns about high inflation persist, the survey also showed that business confidence remains relatively high and has increased since the previous quarter. However, the Bank of England (BoE) has indicated that it is likely to keep borrowing costs high for a prolonged period, despite the challenges faced by the UK economy in terms of growth.
The CFOs surveyed by Deloitte, on average, anticipate a reduction in the BoE’s bank rate to 4.75% in one year’s time, compared to the current rate of 5.25%. Other forecasts made by the CFOs include a projection for inflation to be at 3.1% in two years’ time, down from the current rate of almost 7%, but still above the BoE’s target of 2%. Additionally, wage growth is expected to decrease to 4.3% next year from the current rate of 6.2%, as labor shortages diminish.
The recent survey results highlight the changing attitudes towards borrowing among finance executives in the UK. As interest rates climb, CFOs are becoming more cautious about taking on debt, favoring equity finance instead. While business confidence remains strong, concerns about high inflation persist. The BoE is expected to maintain relatively high borrowing costs for the foreseeable future, setting the stage for continued caution in the business community. Despite these challenges, the UK economy will likely see a decrease in inflation and wage growth as labor shortages ease.
More detail via The Star here… ( Image via The Star )