Chart of the day: Gloom starts to fade

Business optimism is rising at its fastest rate since 2007, according to a new survey from Deloitte.

Confidence among UK corporates has increased significantly since the start of 2012, according to a survey of 136 chief financial officers (CFOs) and group finance directors conducted by Deloitte.

The proportion of finance chiefs who expect a double-dip recession has fallen to 30 per cent – a decrease of 54 per cent compared to December 2011 – while the number of CFOs expecting one or more members of the single currency to leave the euro in 2012 has fallen from 37 per cent in 2011 to 26 per cent. 

The survey, which included 39 FTSE 100 and 53 FTSE 250 businesses, found that business optimism is rising at its fastest rate since 2007. However, 84 per cent of CFOs still rate the general level of uncertainty facing their businesses as being above normal.

Ian Stewart, chief economist at Deloitte, said: “The worries about the risk of recession and a break-up of the single currency that dominated corporate thinking at the end of last year have eased. Stronger financial conditions, reflected in rising global equity markets, are seen to be benefiting larger UK companies, with CFOs reporting an increase in credit availability. This more than unwinds the deterioration in credit availability seen in December which, at the time, some feared could be the start of a second credit crunch.”

Thirty-nine per cent of respondents said that they viewed introducing new products and services or expanding into new markets as a top priority over the next 12 months.

Stewart added: “The marked deterioration in UK and European growth prospects in the second half of 2011 derailed what, in early 2011, looked like a solid recovery. That episode underscored how macroeconomic risks can escalate and how quickly the outlook can change. This quarter’s CFO survey shows a strong rebound in UK corporate optimism from December’s lows. However, having been wrong footed by a weakening of the economy in 2011, UK businesses may need more evidence that the recovery is on track before committing to more expansionary policies.”

Most CFOs expect the UK’s current weak patch in growth to last for more than a year.

Stewart concluded: “Current, near record levels of cash being run by the UK corporate sector may well be a symptom of caution on the part of businesses. A majority of CFOs say that they aim to run higher cash balances then before the financial crisis. One interpretation is that relatively high levels of cash being held by UK corporates represent an insurance policy against a volatile, slower-growth environment.”