A positive start to 2024

08 January 2024

Join me this Wednesday, 10 January, at 1300 GMT for our year-ahead webinar in which I look at the outlook for the UK and global economies in 2024. To register, please visit:
https://deloitte.zoom.us/webinar/register/WN_lykhjBh2QcWo05KzTdbX6A

The UK’s largest businesses enter 2024 in a surprisingly positive mood. The latest CFO survey, which was conducted in a two-week period to 12 December, shows sentiment among the chief financial officers of large UK firms rising for the second consecutive quarter to well above-average levels. CFO risk appetite, while still subdued, has risen to an 18-month high.

These findings may seem at odds with the sluggish pace of growth seen in 2023. Part of the explanation is that inflation and interest rates worries that have dominated CFO thinking have eased markedly. Inflation and interest rates have dropped down the CFOs’ list of worries and CFOs expect wage and price pressures to continue to ease.

Nonetheless, CFOs continue to see near-term risks. Perceptions of external financial and economic uncertainty have risen and are running at above-average levels with geopolitics seen as the greatest external risk over the next 12 months. CFOs foresee growth ahead – but not imminently. Corporates are focused on cutting costs and building up cash rather than hiring, capital spending or M&A.

Three long-term themes emerge from this quarter's survey. First, CFOs expect labour costs to remain elevated, something that helps explain why CFOs also expect to see sustained business investment in new technology. Second, CFOs expect interest rates to average 3.5% over the next five years, far higher than the average of 0.5% that prevailed between 2009 and 2022. Third, CFOs believe that we are in an era of big government that will be associated with rising levels of regulation and taxation.

CFOs start 2024 in a positive mood, but one tempered by high levels of uncertainty. Most economists expect UK GDP growth to pick up from around the middle of this year. CFOs foresee better times ahead, but based on their defensive balance sheet stance, not yet.

To access the latest CFO Survey please visit:ht
tps://www2.deloitte.com/uk/en/pages/finance/articles/deloitte-cfo-survey.html

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index closed the week down 0.4% at 7,690.

Economics

Over the weekend US Republican and Democratic leaders reached an agreement on government spending this year, a development that reduces the risk of a federal shutdown
The US job market picked up unexpectedly in December adding 216,000 jobs, despite job openings hitting a two-year low
Official minutes revealed that US Federal Reserve officials want to keep borrowing costs high “for some time”
Markets reacted to the strong job data and Fed comments by paring expectations for US rate cuts in the first half of the year
Richmond Federal Reserve president Thomas Barkin warned that businesses planning to raise prices could derail the central bank’s efforts to achieve a soft landing
US manufacturing sector activity contracted in December for a fourth consecutive month as demand remained soft and companies reported job cuts and slower hiring, according to the Institute for Supply Management index 
UK business activity rose rise in December, according to the S&P Global UK Purchasing Manager’s Index, with services output growing at the fastest pace in six months, more than offsetting the contraction in manufacturing
UK grocery inflation fell at the fastest pace on record as it dropped from 9.1% in November to 6.7% in December thanks to an increase in the use of promotions by retailers, according to Kantar
UK mortgage approvals rebounded to a five-month high in November reaching over 50,000 approvals as markets expect interest rates to fall in 2024
House prices in the UK rose by 1.1% in December despite higher borrowing costs. However, Halifax predicts that house prices may fall between 2% to 4% in 2024
Consumer price inflation in Germany rose to 3.8% in December from 2.3% in the previous month and inflation in the euro area rose to 2.9% in December as the governments ended subsidies on gas, electricity and food

Business

US electric carmaker Tesla was overtaken by the Chinese BYD as the world’s top-selling electric vehicle manufacturer
US energy company Chevron recorded a $4bn loss due to regulatory changes in California and decommissioning liabilities of sold oil and gas production facilities in the Gulf of Mexico
Energy companies BP and Equinor scrapped plans to build an offshore wind farm in the state of New York due to higher interest rates, higher building costs and supply disruptions
US venture capital fundraising hit a six-year low in 2023 amid high borrowing costs and falling valuations
US money market funds reached a record high of $6tn as higher yields attracted investors
Fast-food giant McDonald’s said that the conflict in the Middle East is having a “meaningful business impact” due to the pro-Palestinian Boycott Divestment Movement
French retailer Carrefour dropped PepsiCo products due to “unacceptable price increases”
The UK government announced that it will increase the value of farming subsidies by 10% in England in an effort to increase take-up for the post-Brexit agricultural subsidies. The government will also streamline the application process and introduce premiums for actions that do the most to protect the environment
UK retailer Next upgraded its profit forecast for the fifth time in eight months thanks to better-than-anticipated full-price sales
UK sports retailer JD Sports and US sports manufacturer Nike issued warnings for their outlooks due to softer demand for sporting goods as consumer spending has become “more cautious”

Global and political developments

China launched an anti-dumping investigation into imports of French brandy in a move that some see as a response to the EU’s anti-subsidy review of Chinese electric vehicle imports
UK prime minister Rishi Sunak indicated that the UK may hold a general election in the second half of 2024
ISIS claimed responsibility for two terrorist attacks that killed almost 100 people near the burial site of military commander Qasem Soleimani in southern Iran
Former US president Donald Trump filed lawsuits to be reinstated in Maine’s and Colorado’s presidential primaries after the states’ superior courts disqualified him from holding higher office for his role in the January 6, 2021 attack on the US Capitol
Russia and Ukraine exchanged more than 200 military prisoners as part of a UAE-brokered deal

And finally… a dog in Pennsylvania has cost its owners more than they bargained for. The dog, Cecil, enjoyed a very expensive dinner when he ate an envelope containing $4,000 left out by the owner - terrier-ble investment

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