Finance heads lose appetite for debt after rates climb


Different focus: People walking past the Bank of England in London. The central bank’s officials expect the country’s economy to grow just 0.1% in the third quarter. — AP

LONDON: Finance executives at top United Kingdom firms are the most wary about borrowing than at any time since at least 2007, according to a survey that underscores how the climb in interest rates is weighing on businesses and the broader economy.

The survey by Deloitte, published yesterday, found the gap between chief financial officers (CFOs) who rated bank borrowing as attractive and those who saw it as unattractive stood at a net minus 37%, the widest since the survey was launched 16 years ago.

A similar proportion said debt sales were unattractive while equity finance became more popular.

“Higher interest rates have flipped a decade-old consensus which was previously in favour of debt finance,” Ian Stewart, chief economist at Deloitte, said.

“Finance leaders are preparing for a period of high-interest rates with predicted rates falling only slightly over the next year.”

Worries about high inflation were persisting although the quarterly survey also showed business confidence was running at above-average levels and was up from three months ago.

The Bank of England (BoE) raised rates 14 times in a row between December 2021 and August this year, before pausing its increases in September.

Top BoE officials have stressed they are likely to keep borrowing costs high for a period and not cut them quickly even as the United Kingdom economy struggles to grow.

The CFOs quizzed by Deloitte on average expected the BoE to cut its bank rate to 4.75% in a year’s time from 5.25% now.

Other forecasts included one for inflation to be running at 3.1% in two years’ time, down from almost 7% now but still above the BoE’s 2% target, and wage growth to slow to 4.3% this time next year from 6.2% as labour shortages diminished. — Reuters

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Deloitte , CFOs , Bank of England

   

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