Q4 2022

The Deloitte CFO Survey

Credit conditions tighten

By raising interest rates, the Bank Concerns about levels of leverage in Although CFOs report an easing
of England aims to make credit less the corporate sector have edged up. of recruitment difficulties, almost
attractive and dampen inflation. a third said their businesses
On the evidence of Deloitte’s latest Despite the challenging macro experienced severe or significant
survey of Chief Financial Officers, the environment CFOs’ perception of recruitment difficulties or labour
Bank’s policy is working. external risk, particularly inflation, shortages. However, they see a sharp
has eased since October’s peak. improvement in hiring conditions in
Between December 2009 and The CFO risk rating for eleven of the a year’s time with just 17% expecting
December 2021 UK base rates areas tracked in the survey have severe or significant recruitment
averaged 0.5% and the CFOs of declined with only two, relating to difficulties by then.
Britain’s largest corporates saw debt weakness in the US economy and in
as offering by far the most attractive emerging markets, increasing. The Expectations for hiring have
form of finance for their business. largest decline relates to inflation, fallen sharply, with far more CFOs
Today, with interest rates at 3.5%, a shift that is reflected in reduced expecting to reduce hiring in the
CFOs rate credit as being more perceptions of risk around supply next 12 months than to increase it.
expensive than at any time since chains, labour shortages and the The easing of CFOs’ concerns about
2009. Debt is increasingly out of prospect of higher interest rates. inflation, and reduced expectations
favour. Not since the financial crisis Concerns about energy prices and for labour shortages and supply
have CFOs rated bank borrowing supply have eased significantly, bottlenecks, fit with the idea that the
and debt issuance as being less consistent with the decline in energy UK has passed the peak in inflation
attractive than they do today. prices since the summer and high for this cycle.
levels of European stocks of gas.
The most aggressive tightening Although CFOs expect cuts in capital
of monetary policy in more than CFOs also report a fall in supply expenditure, discretionary spending
30 years is reshaping corporate disruptions faced by their businesses and hiring over 2023, they remain
attitudes to debt. In the era of and expect significant further falls positive on investment in certain
ultra-low interest rates debt finance over the next two years. Only one in areas over the medium term. The
easily eclipsed equity. Now they ten CFOs expect significant or severe overwhelming majority (92%) expect
are roughly on par in the eyes of supply disruptions in a year’s time, higher investment in workforce skills
CFOs. Demand for credit is well the lowest reading since we started over the next three years, almost
below average levels and flagging. asking this question in mid-2021. eight in ten (79%) expect greater
investment in digital technology and
assets, and more than 70% expect
Chart 1: Corporate financing
Net % of CFOs who rate the following sources of funding for UK corporates increased productivity growth and
as very or somewhat attractive business performance over a three-
100% year timeframe.

80%
Finance leaders also see some
Attractive

60% opportunities in the coming

40% downturn. About one in three see
the more competitive environment
20%
allowing stronger firms to grow
0% their market share. 29% see this
Unattractive

Bank
-20% borrowing as an opportunity to implement/
Equity accelerate structural change in
-40%
Corporate bonds their businesses and 26% see an
-60% opportunity to optimise the pricing
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

of their products and services.

1
The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Credit conditions tighten

Between December 2009 and Chart 2. Cost and availability of credit

December 2021 UK base rates Net % of CFOs reporting credit is costly and credit is easily available
averaged 0.5%. Today, with interest

Credit is available
100% Availability of credit
rates at 3.5%, CFOs rate credit as
being more expensive than at any Credit is costly 80%
60%
time since 2009.
40%
20%
The availability of credit has also
0%
declined, and is now at its lowest

Credit is hard to get

Credit is cheap

-20%
level in more than ten years.
-40%
Cost of credit
-60%
-80%
-100%
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
This increase in rates is reflected Chart 3. Short-term interest rates
in CFOs’ characterisation of short- Net % of CFOs who characterise short-term market interest rates in the UK
term interest rates as being at as quite high or very high
their highest level since 2008. 100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

The higher cost of credit is Chart 4. Corporate credit demand

reducing demand for borrowing. Net % of CFOs who expect their own business's demand for new credit to
CFOs expect the weakest demand increase over the next 12 months
for new credit since 2018.
60%

50%

40%

30%

20%

10%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2
 The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Reduced risks of energy disruption and inflation

Chart 5. Risk to business posed by the following factors

Weighted average ratings on a scale of 0-100 where 0 stands for no risk and 100 stands for the highest possible risk

65
Rising geopolitical risks worldwide including the war in Ukraine
70

62
Higher energy prices or disruption to energy supplies
72

The prospect of further rate rises and a general tightening 58

of monetary conditions in the UK and US 66

The risk of higher inflation and/or a bubble in housing and 53

other real and financial assets 64

56
Persistent labour shortages
61

49
Poor productivity/weak competitiveness in the UK economy
57

48
Long-term effects of climate change
51

44
Medium-term supply chain disruption
50

45
Effects of Brexit/deterioration in UK-EU relations
49

51
Economic weakness and/or volatility in US growth
47

Deflation and economic weakness in the euro area, 37

and the possibility of a renewed euro crisis 43

38
Weakness and/or volatility in emerging markets
35

30
Effects of the COVID-19 pandemic
30

0 10 20 30 40 50 60 70 80
2022 Q3 2022 Q4

Despite the challenging macro environment CFOs’ perception of external risk, particularly inflation, has eased
since October’s peak. The CFO risk ratings for ten of the thirteen areas tracked in the survey have declined.
Only two areas, relating to weakness in the US economy and in emerging markets, have seen an increase in risk
ratings. The largest decline relates to inflation, a shift that is reflected in reduced perceptions of risk around
supply chains, labour shortages and the prospect of higher interest rates. Concerns about energy prices and
supply have eased significantly, consistent with the decline in energy prices since the summer and high levels of
European stocks of gas.

3
The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Inflation tide turning

CFOs report a fall in supply Chart 6. Supply chain disruption

disruptions faced by their
businesses and expect further
significant falls over the next two
years. Around one in ten CFOs
expect significant or severe supply
% of CFOs who report significant or severe levels of supply chain disruption
experienced by their business over the last three months and those
expecting similar levels of disruption in one year's and two years’ time
35%
30%
30%

disruptions in a year’s time, the 25% 22%

21%
lowest reading since we started 20%
asking this question in mid-2021. 15%
11%
10% 6%
4%
5%
0%
2022 2022 2022 2022 2022 2022
Q3 Q4 Q3 Q4 Q3 Q4
Disruption experienced Disruption expected Disruption expected
in past three months in one year's time in two year's time

CFOs reported some easing of Chart 7. Recruitment difficulties and labour shortages
recruitment difficulties in the % of CFOs who report significant or severe levels of recruitment difficulties or
fourth quarter. Yet, almost a third labour shortages experienced by their business over the last three months and
those expecting similar levels of disruption in one year’s and two years’ time
continue to say their businesses
45% 41%
experienced severe or significant
40%
recruitment difficulties or labour 32%
35%
shortages in the three months 30% 25%
before the survey. 25%
20% 17%
CFOs expect to see significant 15%
10%
improvements in future with 10%
5%
just 17% expecting severe or 5%
0%
significant recruitment difficulties 2022 2022 2022 2022 2022 2022
in a year’s time. Q3 Q4 Q3 Q4 Q3 Q4
Experienced in past Expected in Expected in
three months one year's time two year's time

The moderation of supply chain Chart 8. Inflation expectations

disruptions and labour shortages CFOs’ median expectations for inflation in one year’s time and two years’ time
also translates into an easing in 7%
6.2%
CFOs’ inflation expectations. 5.8%
6%

They expect inflation to fall to 5%

5.8% in a year’s time and to 3.3% 3.8%
4%
in two years’ time. This represents 3.3%
a marked softening of inflation 3%
expectations relative to the last
2%
quarter.
1%

0%
2022 2022 2022 2022
Q3 Q4 Q3 Q4
One year's time Two year's time

4
 The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Cost reduction remains top priority

Chart 9. Corporate priorities in the next 12 months

% of CFOs who rate each of the following as a strong priority for their business in the next 12 months

Reducing costs 48%

55%

43%
Increasing cash flow
28%
Introducing new products/services or 24%
expanding into new markets 26%

21%
Reducing leverage
22%

13%
Expanding by acquisition
14%
12%
Increasing capital expenditure
13%

9%
Disposing of assets
6%

1%
Raising dividends or share buybacks
4%

0% 10% 20% 30% 40% 50% 60%

2022 Q3 2022 Q4

UK CFOs maintained a cautious strategy stance in the fourth quarter, with the weakest focus on expansionary
strategies in two-and-a-half years and the strongest focus on defensive strategies in two years. The increased
focus on defensive strategies was driven by a sharp rise in the priority given to increasing cash flow. With CFOs
also reporting significant rises in operating costs and margin pressure it is unsurprising that cost reduction
remains the top priority overall.

The priority given to returning cash to shareholders by raising dividends or buying back shares is at its second-
lowest point on record – only during the very beginning of the pandemic did this reading dip lower than 1%. With
the attractiveness of debt as a source of finance now down to similar levels as that of equity, it is perhaps not
surprising that companies are in no rush to return cash to shareholders.

Despite the challenging backdrop,
over a third of CFOs see a more
competitive environment as a
significant opportunity for their
business, allowing them to grow
market share.
Chart 10. Opportunities in the coming downturn
% of CFOs who identify the following as a significant opportunity for their
business in the coming downturn
More competitive environment allows
34%
stronger businesses to grow market share
Implementation/acceleration of structural
29%
change within the business

Similarly, almost three in ten Ability to optimise pricing 26%

CFOs see this downturn as an Potential acquistion of distressed or
23%
opportunity to implement or low-priced assets

accelerate structural change Easier hiring environment for businesses 19%

within their businesses.
Consolidation of product/service offerings 10%

0% 5% 10% 15% 20% 25% 30% 35% 40%

5
The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Risk appetite remains low

Only one in ten CFOs think that Chart 11. Corporate risk appetite
now is a good time to take greater % of CFOs who think this is a good time to take greater risk onto their
risk onto their balance sheets. Risk balance sheets
appetite remains well below its 80%
long-term average of 26%.
70%

60%

50%

40%

30%

20%

10%

0%
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
When asked their views on Chart 12. Long-term changes
the external and business % of CFOs who expect the following to increase in the longer term compared
environment in the long term, to this year
CFOs report that the most likely Labour costs 91%
changes relative to 2022 are higher Levels of corporate/individual taxation 87%
labour costs, higher taxation and High-skilled immigration from outside the EU 54%
more high-skilled immigration to Regulation of the corporate sector 53%
Business investment in new technology 50%
the UK from non-EU countries.
Diversification and near-shoring of supply chains 48%
Size and role of government in the economy 24%
Levels of flexible or home working,
Levels of corporate debt 23%
high-skilled immigration from the Flexible/home working 12%
EU and volumes of trade with the High-skilled immigration from the EU -3%
EU appear to be closer to a new Goods trade with the EU -4%
normal following Brexit and the Services trade with the EU -13%
pandemic. -20% 0% 20% 40% 60% 80% 100%
Substantial changes to come Already close to new normal

Although CFOs expect cuts in Chart 13. Changes in corporate focus

capital expenditure, discretionary Net % of CFOs who expect investment in workforce skills, investment in
spending and hiring over digital technology assets, investment in physical technology and assets, and
productivity growth and business performance to increase over the next
2023, they remain positive on three years relative to the pre-pandemic trend, and net % of CFOs who
investment in certain areas over expect UK corporates’ hiring, capital expenditure and discretionary spending
the medium term. to increase over the next 12 months relative to current levels
Investment in workforce skills (such as retraining and
upskilling employees) 92%
The overwhelming majority expect
Investment in digital technology and assets (such as software, IT and 79%
higher investment in workforce the application of AI to reorganise your operations/product offering)
skills over the next three years, Productivity growth and business performance 71%
almost eight in ten expect greater -59%
Hiring
investment in digital technology
Capital expenditure -62%
and assets, and more than 70%
expect increased productivity Discretionary spending -78%
growth and business performance -100% -60% -20% 20% 60% 100%
over a three-year timeframe. Expected change over the next three years relative to pre-pandemic trend
Expected change over the next 12 months relative to current levels

6
 The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

CFO Survey: Economic and financial context

The macroeconomic backdrop to the Deloitte CFO Survey Q4 2022

Although 2022 saw the highest inflation rates across developed economies in 40 years, the fourth quarter
brought some reassuring signs of inflation potentially peaking in the US, UK and Europe. Energy prices fell as
the risk of gas shortages in Europe receded, and supply chain pressures eased significantly. Economic activity
is slowing down as the impact of tighter monetary policy and price pressures squeezes real incomes and
demand, especially in the developed world. Despite raising interest rates throughout the fourth quarter, western
central banks have slowed down the pace of monetary tightening. Labour markets remained resilient, with
unemployment rates at historically low levels. We saw some early signs of cooling, with a decline in job vacancies
in the UK. Although China’s shift away from its zero-COVID policy is likely to ease supply bottlenecks, the
subsequent surge in Chinese COVID-19 cases has dampened growth. UK fiscal policy was tightened substantially
alongside the reversal of policies announced in the September mini-budget, easing pressures on gilts and
leading to an appreciation of the pound.

UK GDP growth: Actual and forecast (%) FTSE 100 price index
25 Forecast
8000

20

15
7200
10

5 Year-on-year growth

0 6400
Quarter-on-quarter growth
-5

-10
5600
-15

-20

-25 4800
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
2023
2024
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Refinitiv Datastream, Deloitte calculations Source: Refinitiv Datastream

GfK Consumer Confidence Index (UK) Markit Purchasing Manager Indices (UK)
10
80

0 70
Services
60
-10
50
-20 40 Manufacturing

-30
30
20
-40
10
-50 0
2019 2020 2021 2022
2007
2008
2009
2010
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Refinitiv Datastream Source: Refinitiv Datastream, readings above 50 indicate expansion

7
 The Deloitte CFO Survey Q4 2022 | Credit conditions tighten

Two-chart summary of key survey messages

Chart 2. Cost and availability of credit Chart 4. Corporate credit demand

Net % of CFOs reporting credit is costly and credit is Net % of CFOs who expect their own business's demand
easily available for new credit to increase over the next 12 months

60%

Credit is available
100% Availability of credit
Credit is costly

80%
50%
60%
40% 40%
20%
0% 30%
Credit is hard to get
Credit is cheap

-20%
20%
-40%
Cost of credit
-60% 10%
-80%
0%
-100%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

About the survey

This is the 62nd quarterly survey of Chief Financial Officers and Group Finance Directors of major companies
in the UK. The 2022 fourth quarter survey took place between 6th December and 16th December. 78 CFOs
participated, including the CFOs of 17 FTSE 100 and 32 FTSE 250 companies. The rest were CFOs of other
UK-listed companies, large private companies and UK subsidiaries of major companies listed overseas. The
combined market value of the 53 UK-listed companies surveyed is £363 billion, or approximately 15% of the
UK quoted equity market.

The Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to
valuations, risk and financing. To join our panel of CFO respondents and for additional copies of this report,
please contact Elaine Hoang on 020 7007 4717 or email ehhoang@deloitte.co.uk.

8
Authors Key contacts
Ian Stewart Ian Stewart
Chief Economist Chief Economist
020 7007 9386 020 7007 9386
istewart@deloitte.co.uk istewart@deloitte.co.uk

Debapratim De David Anderson

Senior Economist CFO Programme Leader
020 7303 0888 020 7303 7305
dde@deloitte.co.uk davidjanderson@deloitte.co.uk

Tom Simmons Anna Marks

Senior Economist CFO Programme Leader
020 7303 7970 0118 322 2316
tsimmons@deloitte.co.uk amarks@deloitte.co.uk

Peter Ireson For current and past copies of the survey, historical
Economic Analyst data and coverage of the survey in the media and
0117 984 1727 elsewhere, please visit:
pireson@deloitte.co.uk www.deloitte.co.uk/cfosurvey

Edoardo Palombo
Economic Analyst
020 7303 7015
epalombo@deloitte.co.uk

This publication has been written in general terms and we recommend that you obtain
professional advice before acting or refraining from action on any of the contents of this
publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting
or refraining from action as a result of any material in this publication.

Deloitte LLP is a limited liability partnership registered in England and Wales with
registered number OC303675 and its registered office at 1 New Street Square,
London, EC4A 3HQ, United Kingdom.

Deloitte LLP is the United Kingdom affiliate of Deloitte NSE LLP, a member firm of Deloitte
Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and
each of its member firms are legally separate and independent entities. DTTL and Deloitte
NSE LLP do not provide services to clients. Please see www.deloitte.com/about to learn
more about our global network of member firms.

© 2023 Deloitte LLP. All rights reserved.

Designed and produced by 368 at Deloitte. J30277