The Big Four firm’s latest survey of UK chief financial officers (CFOs) closed on 31 March – two days before the US announced new tariffs – and amid increasing speculation about upcoming changes to US trade policy.

The survey show’s the shift is driven by persistent cost pressures and significant uncertainty surrounding global trade, particularly potential US tariffs. Finance leaders have sharpened their focus on cost control with 63% saying it is a strong priority for their business, the second-highest reading on record.

Alongside this, a net 14% of CFOs reported feeling more pessimistic about the prospects of their business than three months ago. However, optimism remains well above the lows seen during the pandemic in 2020 or after the invasion of Ukraine in 2022.

In addition, the findings show that – even before the official announcement on broad tariffs made in the last fortnight – finance chiefs’ concern over geopolitical risk and protectionism had risen to its highest level since Russia’s invasion of Ukraine, at a weighted average rating of 74. Concerns over weakness or volatility in US growth (rated at a weighted average of 60) also rose to the highest level since we began asking the question nearly five years ago.

Risk appetite among CFOs declined in the first quarter, with just 12% reporting that now is a good time to take greater risk onto their balance sheet. This is less than half the long-term average of 25%. 

Amanda Tickel, head of tax and trade policy at Deloitte UK, said: “Given widespread speculation over the scale and scope of US tariff rises during the survey period, it is unsurprising that CFOs reported elevated levels of uncertainty. Previous periods of uncertainty over future terms of trade have resulted in a prolonged squeeze on investment.

“This is still a rapidly evolving environment, and businesses will need to be proactive in mitigating the effects of tariffs, however, they will be unlikely to actually reconfigure their global supply chains or production until they see the results of negotiations or responses by other nations.

“Right now, businesses will be modelling the potential impacts, assessing whether their customs operations are prepared and ensuring they have as much flexibility as possible to source and supply. Being across every element of a product’s journey from its origin to its value, to its tariff classification, will stand businesses in good stead wherever the tariffs finally land.” 

Cost pressures persist

A net 63% of finance leaders believe that operating costs will continue to increase over the next 12 months, while a net 35% expect to see an increase in revenues. There is less certainty that revenues will continue to increase however, with a majority of finance chiefs (net 35%) expecting a decline in operating margins.

Inflation expectations increased for the third consecutive quarter, to 3.1% over the next year and 2.6% over the subsequent year, up from 2.5% and 2.4% respectively in the previous edition of the survey. A year ago, UK finance chiefs expected that the Bank Rate would currently stand at 4.25% rather than the 4.5% it is now, and they now expect that rates will fall to 4.0% in a year’s time.

Cooling in the labour market

Finance leaders see a cooling labour market in the UK, as the proportion of businesses reporting greater than mild recruitment difficulties has fallen to 29%, down from 86% three years ago. Looking ahead to the next 12 months, CFOs are expecting to see the sharpest decline in corporate hiring since Q3 2020, and expect wage growth to slow from 3.6% to 3%. 

Along with the reduction in corporate hiring, a net 30% of finance chiefs expect UK corporate capital expenditure to decline over the next 12 months and a net 58% expect to see a decline in discretionary spending.

Consequences of geopolitical developments

This quarter the survey repeated a set of questions asked at the same time last year (Q1 2024), on how finance leaders see geopolitical risks impacting their own business. CFOs rate a rise in tariffs, sanctions, restrictions to market access or other restrictions to business operations as the most prominent channel through which geopolitics could impact their businesses, with 46% reporting that it is a significant concern for their own business. This is up from 15% last year, reflecting ongoing global events.

Ian Stewart, chief economist at Deloitte UK, said: “Although large UK businesses are preparing for turbulence, levels of pessimism have not fallen to the low that was seen during the pandemic.

“Finance leaders have a continued focus on costs and hiring, and the prioritisation of more defensive strategies is standard practice amongst business leaders during challenging times.”