TLDR: UK’s Finance Bosses Looking to Boost Productivity As Confidence Jumps

UK Chief Financial Officers are optimistic about the future and are prioritizing investment in technology to boost productivity. Confidence among CFOs has risen for the second consecutive quarter, and concerns about inflation and high interest rates have decreased. CFOs expect the Bank of England’s base rate to fall, indicating expectations of rate cuts in the future. While CFOs expect labor costs to remain elevated, there is an increased anxiety about productivity and competitiveness in the UK economy. CFOs predict an increase in investment in new technology to improve productivity. However, they believe that flexible or home working has peaked and expect it to decline in the long term.

Key Points:

• CFOs prioritize investment in technology to boost productivity
• Confidence among CFOs rises for a second consecutive quarter
• CFOs expect the Bank of England’s base rate to fall
• Inflation and interest rate worries have decreased
• Increased anxiety about productivity and competitiveness in the UK economy
• CFOs predict an increase in investment in new technology
• Expectation of a decline in flexible or home working in the long term

Optimism is running high among the UK’s Chief Financial Officers, who see investing in technology as a priority over the coming months as they contend with elevated wage costs. Deloitte’s quarterly CFO survey reports a positive start to 2024 with a rise in confidence for a second consecutive quarter as optimism runs well above average levels. Inflation and high interest rates have meanwhile dropped down the list of risks cited by CFOs.

Corporate risk-taking appetite has risen to an 18-month high, although it remains subdued relative to its long-term average. “These findings may seem at odds with recent economic news, particularly a contraction in third quarter GDP and forecasts of sluggish UK growth in 2024. But, while the pace of growth softened in 2023, activity proved more resilient than expected, with unemployment at low levels, corporate profitability holding up and an absence of stress in financial markets,” says Ian Stewart, chief economist at Deloitte.

Notably, the inflation and rate worries that dominated the CFO Survey for much of the last two years have eased since the last quarter. UK inflation has fallen sharply while market-implied expectations for the future of Bank of England interest rates shows investors are prepared for rate cuts over the coming quarters. CFOs expect the Bank of England’s base rate to fall from its current level of 5.25% to 4.75% in a year’s time. The risk of higher inflation has dropped down CFOs’ list of concerns to a weighted average rating of 53, from 58 in the last survey.

The survey also reveals an increased anxiety about productivity and competitiveness in the UK economy, which is now second on the risk list with a rating of 56, up from 53 last quarter. Deloitte reports a strong consensus among finance leaders that the UK has entered a prolonged period of high labour costs. A net 92% of CFOs expect labour costs to remain elevated in the long term, relative to 2023. Elevated wage costs and productivity concerns could explain findings that a net 63% of CFOs expect investment in new technology to increase in the long term. The investment in technology signals a potential improvement in the UK’s productivity, which has been perplexingly poor since 2008. Investing in technology and machinery can boost the productivity of the UK’s workforce, potentially delivering meaningful improvements to living standards over the coming years.

Meanwhile, CFOs think that levels of flexible or home working have peaked, with a net 57% expecting home working to decline in the long term.