More than eight in 10 chief financial officers (CFOs) of British firms classify political uncertainty across Europe as their main source of concern, a survey released on Wednesday (11 May 2016) has shown.
According to the latest Deloitte's quarterly European CFO Survey, perceptions of uncertainty have risen, cost control remains a top business priority and appetite for risk is diminishing. Some 68% of the 1,490 CFOs polled across 17 European countries indicated there was a high level of financial and economic uncertainty facing their business – a slight increase on the 66% recorded in the third quarter.
That percentage, however, stood at 83% in Britain. The figure marked an increase from the 73% recorded in the previous three months and was second only to that recorded in Germany, where 93% of finance chiefs reported high levels on uncertainty surrounding their businesses. Deloitte said the increasing uncertainty in Britain was attributable to the upcoming referendum that will decide the UK's relationship with the European Union.
"Europe entered 2016 with a number of political and geopolitical risks that could threaten growth, confidence and political unity," said Deloitte chief economist, Ian Stewart.
"Internal politics has been a destabilising influence in Spain, Ireland and Portugal, where closely contested elections led to a political stalemate in recent months, and the UK has seen rising uncertainty ahead of its referendum on EU membership."
Unsurprisingly, the risk appetite declined from 33% to 29%, with Britain recording the largest decline in the category. The percentage of UK businesses that consider this a good time to take risk on to their balance sheets almost halved from the previous quarter, falling from 47% to 25%.
Despite the uncertainty, however, CFOs were optimistic on the outlook for hiring. Some 39% of the respondents believe employment will continue to grow, up from 35% in the previous quarter.
Ireland led the way with 68% of CFOs forecasting an increase in job numbers compared with 55% in the previous three months, while Britain registered the sharpest decline in hiring expectations. Only 18% of UK CFOs revealed plans to increase hiring, down from 47% in the third quarter.
"The resilience of hiring plans in the face of these uncertainties show CFOs expect Europe's recovery to roll on," added Stewart.
"In a sign that the recovery is spreading from Europe's centre, hiring plans are strongest in those countries that saw the largest rises in unemployment after the financial crisis.
"Europe's economy has benefited from ultra-loose monetary policy, sharp falls in unemployment and rising real incomes. So far, political risks have not knocked Europe's recovery off course but the evidence of recent years is that sustained uncertainty acts as a brake on growth."