UK (Parliament Politics Magazine) – Deloitte’s latest survey shows that UK CFOs plan to cut significant costs and reduce hiring in 2025 in response to increasing national insurance contributions.
According to Deloitte’s latest survey, two-thirds of finance directors reported no plans to expand their workforce this year, the highest figure in four years. Meanwhile, 26% expressed greater pessimism about their company’s outlook than three months ago, representing the first negative shift in sentiment in 18 months.
As reported by Deloitte, the majority of CFOs are prioritising cost-cutting measures, which have been their top strategy for almost a year. In response to rising NICs, they are focusing on reducing costs, boosting productivity, and raising customer prices.
Finance executives anticipate a 0.75 percentage point cut in interest rates to 4% by the end of 2025, which will lower loan expenses for firms and households.
The survey revealed a significant decline in employment expectations, the sharpest since the start of COVID-19 in 2020. Just 18% of finance leaders are willing to take on extra risk, the lowest appetite in the last five quarters.
Deloitte economist predicts UK growth despite pessimism
Ian Stewart, Deloitte’s chief economist, stated,
“With cost control to the fore in the wake of the budget, chief financial officers have trimmed expectations for corporate investment, discretionary spending and hiring in the next 12 months.”
He added,
“But despite a fall in business confidence, we expect to see UK growth picking up over the summer on the back of easy fiscal policy and interest rate reductions, with GDP growth likely to exceed the 2024 outturn and the performance of the euro area.”
Concerns over inflation and interest rates easing
Finance bosses predict a drop in wage pressures next year, with many believing the Bank of England will cut interest rates by 75 basis points to 4.0% by 2025. While credit costs have risen a little, credit availability has improved, with 41% of CFOs finding it accessible, though 49% still find it costly.
The survey revealed that CFOs predict a further slowdown in wage growth, with a 4% rise in average wages over the last year compared to 4.6% previously. They now anticipate this trend continuing, with expectations of a more modest 3.2% rise in the next 12 months.
Geopolitics leads risks amid rising uncertainty
Geopolitical issues top the list of CFO risks for the tenth time in the last 12 quarters, with a risk rating of 655, according to the survey. CFOs also expressed concerns regarding the UK’s competitiveness, which held steady at a rating of 55. However, fears about US economic performance have significantly decreased, falling to 44 from the previous quarter’s 53.
The survey revealed companies chiefs reported growing economic uncertainty in the fourth quarter, with 40% saying their companies face significant external risks. This is the highest level in a year but remains lower than the 51% recorded after the EU referendum.
US emerges as the top choice for investors
A question in this quarter’s survey showed the appeal of numerous investment destinations. British CFOs named the US as their top choice. A net 59% rated it highly attractive, solidifying its position as the clear favourite among finance leaders for investment opportunities.
Although the UK outpaces other developed European economies in investment appeal, its attractiveness has declined the most among major regions, with a net drop of 63% over ten years. In contrast, India and Middle Eastern nations have become more appealing, showing net gains of 42% and 34%.
Mr Stewart said, “The UK ranks as a more attractive location for investment than the euro area, but overall, the US ranks by some margin as the most attractive destination for business investment. 2025 seems likely to be a year of continued if modest UK growth.”
BDO employment index hits 12-year low
The latest data from advisory firm BDO reveal that its employment index hit a 12-year low in December, driven by falling job vacancies and a reduction in the number of paid employees.
BDO predicts additional cuts in hiring plans as businesses face growing pressures from increased national insurance contributions and higher wages, although interest rate cuts may provide some relief.
UK manufacturers call for clear industrial strategy
Recent data from Make UK and PwC shows that manufacturers continue to view the UK as a competitive location for production despite difficulties like increasing costs and the potential risks of a trade war under a second term for newly elected president Donald Trump.
Almost 60% of businesses expressed plans to enhance investments if a clear industrial strategy is introduced. In response, Make UK has urged the government to quickly outline detailed long-term industrial strategy proposals.
Earlier this month, the latest figures from KPMG and recruitment firm REC showed that many companies are hesitant to hire new talent.