The fears about political risk and policy uncertainty, which dampened corporate spirits in the run up to the General Election, have fallen away. Despite the intensifying crisis in Greece, corporate risk appetite rose in the second quarter and CFOs have become markedly more enthusiastic about pursuing growth strategies. In a striking sign that the recovery is gaining ground the prospect of higher interest rates now tops CFOs' list of potential business risks.
The election of a majority Conservative government has turned a referendum on membership of the EU from a possibility to certainty. Yet CFOs are now more relaxed about holding an EU referendum than they were before the election, perhaps because they believe the vote will endorse continued membership. 74% believe that it is in the interests of UK business for the UK to remain within the EU while 2% disagree.
A majority of CFOs expect the government's renegotiation of Britain's relationship with the EU to deliver positive results in all seven areas identified by the Prime Minister. Sentiment is most positive about the scope for the government to be able to tighten benefit rules and reduce excessive regulation.
The results of the renegotiation are set to have a significant effect on corporate attitudes to the EU. 23% of CFOs say that their judgement about membership will depend on the results of the discussions with the EU.
Our survey period in June coincided with a sell‑off in equity markets and an escalating crisis in Greece. Yet perceptions of external financial and economic uncertainty have fallen for the first time in a year. Risk appetite has risen, with 59% of CFOs saying that now is a good time to take risk, up from a two‑year low of 51% recorded in the previous survey, before the General Election. Our index of corporate expansion has risen sharply, to the highest level in four years.
It is indicative of the shift in mood in the corporate sector that after years of easy monetary policy CFOs are contemplating the prospect of higher interest rates. CFOs now rate interest rate rises in the UK and US, along with euro area weakness, as the two main risks to their business.
CFOs became more cautious towards the end of 2014 and in early 2015, partly in response to perceptions of growing policy uncertainty at home. These effects seem to have unwound and CFOs enter the second half of the year in expansionary mode. Our latest results suggest that the UK recovery is regaining momentum.
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