Brexit, British growth are top worries for financial execs, survey shows – MarketWatch

Brexit, British growth are top worries for financial execs, survey shows – MarketWatch

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The pending breakup between the U.K. and the EU is making more top U.K. financial executives uneasy about their prospects for business, according to a survey published Monday.

The rate of chief financial officers who expect some negative, long-term effects from a so-called Brexit climbed to 72% in the second quarter of 2017, from 60% in the first quarter, according to Deloitte. The sentiment snapshot was taken after the U.K.’s general election in early June unexpectedly resulted in a hung parliament.

“More CFOs now see Brexit slowing business investment and hiring, as well as an overall weaker business environment once the U.K. leave the EU. This latest dip likely reflects the outcome of the election and concerns about U.K. growth, which are now at a 2½ year high,” said Ian Stewart, chief economist at Deloitte, in a statement.

The U.K. economy grew by 0.2% in the first quarter, slowing considerably from 0.7% in the fourth quarter of 2016, according to data from the Office for National Statistics.

Deloitte surveyed 122 CFO’s, including 22 who serve at FTSE 100-listed

UKX, +0.23%

 companies and 54 who work at companies listed on the midcap FTSE 250 index

MCX, -0.29%

Brexit negotiations are already under way in Brussels, where officials will try over at least the next two years to sort out a lengthy list of issues. Top among them for the financial industry is whether U.K.-based banks will still have access to passporting, the mechanism that allows those lenders to seamlessly sell their products and services across the 28 EU member states.

Read: The Brexit bill for U.K. banks? Up to $17 billion, warns financial industry group

Also: European Central Bank eyes U.K.’s euro clearing as it asks for more powers

“CFOs continue to cite Brexit as the biggest and a growing risk to their businesses. Weak demand in the U.K. and the prospect of rate rises in the U.S. and U.K. make up the top three risks. Concerns over weak demand in the U.K. have risen to the highest level since we started asking this question at the end of 2014,” said Deloitte.

Deloitte

The firm’s 40th second-quarter survey of financial executives arrived at a time when British households are dealing with a squeeze in pay as consumer price inflation surges toward 3%. But, as Deloitte noted, British manufacturing activity has expanded and orders for exported goods have climbed as weakness in the pound has lured more international buyers.

Britain’s Prime Minister Theresa May had expected Brexit talks to be steered under an expanded majority for her Conservative Party. Instead, late last month, the Conservatives made a deal with the Northern Ireland’s Democratic Unionist Party for about £1 billion in concessions for their support of the minority government and legislation around Brexit.

Although business confidence among CFO’s has been dented since the election, sentiment and risk appetite are still higher than last summer. The Brexit referendum which greenlighted the U.K.-EU breakup was held on June 23, 2016.

Read: A year after the Brexit vote — in charts

And: 5 ways the U.K. could now leave the EU

Risks surrounding geopolitics and global economic growth are no longer the top concerns for financial execs as they were in 2015 and 2016. The focus has now shifted to potential domestic pitfalls.

“This underscores the importance of the Brexit negotiations producing a favorable business environment for U.K. businesses, with access to the skills and markets they need for their future success,” said Deloitte’s Chief Executive David Sproul in a statement accompanying the survey.

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