UK CFOs turn wary as inflation and borrowing costs bite: Deloitte

UK CFOs turn wary as inflation and borrowing costs bite: Deloitte
By Business
Jul 18

UK CFOs turn wary as inflation and borrowing costs bite: Deloitte

CFOs in the UK are becoming more cautious as inflation and borrowing costs start to have an impact on their businesses, according to a report by Deloitte. The report highlights that rising inflation and borrowing costs are now the top concerns for CFOs, surpassing political and economic uncertainty that has dominated the CFO agenda for the past few years. This shift in focus indicates that finance leaders are starting to feel the effects of recent economic developments, and are adjusting their strategies accordingly.

The Deloitte report is based on a quarterly survey of CFOs from large UK-based companies, providing insights into the sentiment and priorities of finance leaders in the country. The latest survey was conducted in the second quarter of 2022, and includes responses from CFOs representing various industries and sectors.

Inflation pressures mount

One of the key findings of the Deloitte report is the increasing concern among CFOs regarding inflation. As prices rise, CFOs are seeing their cost bases expand, putting pressure on profit margins. In response, many CFOs are exploring options to mitigate the impact of inflation, such as renegotiating contracts with suppliers, managing input costs, and considering price increases for their products or services.

The report also highlights that CFOs are worried about the potential impact of inflation on consumer demand. As prices rise, consumers may cut back on spending, which could lead to a slowdown in economic growth. CFOs are closely monitoring consumer behavior and sentiment to gauge the potential impact on their businesses.

In addition, rising inflation is also impacting CFOs’ expectations for interest rates. Higher inflation increases the likelihood of central banks raising borrowing costs, which can have implications for businesses that rely on debt financing. CFOs are assessing the potential impact of higher borrowing costs on their capital expenditure plans and overall financial performance.

Borrowing costs on the rise

Another major concern for CFOs highlighted in the Deloitte report is the increasing cost of borrowing. As interest rates rise, the cost of servicing existing debt and accessing new financing becomes more expensive, which can put strain on companies’ cash flows. CFOs are closely monitoring interest rate movements and assessing the potential impact on their businesses.

In response to the rising borrowing costs, CFOs are reviewing their financing strategies and considering alternative sources of funding. Some CFOs are exploring options such as equity financing, asset-based lending, or refinancing existing debt to take advantage of lower interest rates before they rise further.

Furthermore, CFOs are also focusing on improving their company’s balance sheets and reducing debt levels to mitigate the impact of higher borrowing costs. This may involve implementing cost-saving measures, optimizing working capital, or divesting non-core assets to strengthen their financial position.

The latest Deloitte report indicates that CFOs in the UK are turning increasingly wary as inflation and borrowing costs start to bite. Rising inflation is putting pressure on profit margins and potentially impacting consumer demand, while higher borrowing costs are increasing the cost of financing for businesses. CFOs are taking proactive measures to manage these challenges, such as renegotiating contracts, managing input costs, considering price increases, exploring alternative funding sources, and optimizing their company’s balance sheets. The shifting priorities of finance leaders reflect the evolving economic landscape and the need for businesses to adapt their strategies to navigate the current environment.

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