UK CFOs worry about competitiveness and rising costs, Deloitte says

A recent Deloitte survey indicates that Chief Financial Officers at major British companies are exhibiting their highest level of concern regarding competitiveness and productivity in over a decade, now matching geopolitical anxieties. This heightened worry stems from persistent 4% inflation and nearly 5% annual wage growth, prompting CFOs to focus on strengthening balance sheets through cost control and debt reduction. With 84% of finance leaders anticipating rising operating costs and further tax increases expected from Finance Minister Rachel Reeves, the outlook suggests ongoing pressure on corporate finances and potential hiring delays, despite some minor optimism from stronger order books.

Analysis

Chief financial officers at major British companies are exhibiting their highest level of concern regarding competitiveness and productivity in at least 11 years, now on par with geopolitical anxieties. This heightened worry, identified in a Deloitte survey conducted between September 17-30, reflects a significant deterioration in corporate sentiment. Geopolitical concerns, however, have eased from earlier in 2025 (likely 2024) following U.S. President Donald Trump's bilateral trade deals.

The primary drivers of this pessimism include persistent inflationary pressures, with the Bank of England expecting 4% inflation in September—double its target and the highest among major rich economies. Annual wage growth, though slowing, remains elevated at nearly 5% compared to pre-pandemic levels, contributing to rising operating costs. A net 84% of finance leaders anticipate increased operating costs over the next 12 months, marking a four-year high.

Further exacerbating concerns are anticipated fiscal policy actions, with Finance Minister Rachel Reeves expected to raise taxes again on November 26, following last year's increase in social security contributions. In response, CFOs are proactively strengthening balance sheets through rigorous cost control, building cash reserves, and reducing debt. This cautious approach is also evident in broader business trends, with a rival BDO report indicating delayed hiring in September due to rising costs and budget uncertainty, despite a slight increase in corporate optimism driven by stronger order books and hopes of U.S. investment.

Key Decisions for Investors

• Investors with significant exposure to UK equities should anticipate continued margin pressure on companies due to high inflation, elevated wage growth, and rising operating costs.
• Monitor the upcoming November 26 budget announcement for further tax increases, which could negatively impact corporate profitability and investment decisions.
• Consider companies with strong balance sheets, proven cost control capabilities, and robust cash reserves, as CFOs are prioritizing these measures in the current environment.
• Be cautious of sectors heavily reliant on discretionary consumer spending or those with high labor costs, given the inflationary and wage growth trends.