More than seven out of 10 chief financial officers (CFOs) of Britain’s biggest companies expect high inflation to squeeze their profit margins, and few see the Bank of England bringing inflation under control over the next two years.
A quarterly survey of Deloitte accountants showed a record 98% of CFOs expect their operating costs to rise in the coming year, and 71% expect their margins operating income decreased, compared to 44% in the previous quarter.
“Over the next year, CFOs believe a mix of rising costs and slowing growth will squeeze margins,” said Ian Stewart, chief economist at Deloitte.
Last week, Tesco, Britain’s biggest retailer, warned that its profits would plummet due to soaring inflation, driving down share prices in the grocery sector.
Consumer price inflation hit 7% in March and government budget forecasters predicted last month that it would peak at nearly 9% later this year.
Despite cost pressures, 21% of companies plan to maintain capital investment as a top priority. This is down from the previous quarter’s survey record high of 37%, but above its five-year average.
CFOs also expect inflation to be well above the BoE’s 2% target within two years.
That should raise concerns at the central bank, which worries that expectations of persistently high inflation could turn into a self-fulfilling prophecy if companies use them as the basis for longer-term pricing decisions.
A record 78% of CFOs expect annual inflation two years from now to be above 2.5%, and a quarter expect it to stay above 3.5%. The BoE predicted in February that inflation would fall below 2% by the second quarter of 2024.
Economists and financial markets both expect the BoE to raise its main interest rate to 1% on May 5 from 0.75% currently, and markets see rates rising to at least 2% by the end of the year.
Most economists believe that interest rates will be slower to rise as the cost of living squeeze increasingly dampens growth.
CFOs on average expected interest rates to hit 1.5% a year from now.
The survey took place between March 16 and 30 and used responses from 89 CFOs who worked at companies accounting for around 20% of the UK stock market, as well as large private companies and corporate subsidiaries. foreign.
(Reporting by David Milliken; editing by David Holmes)
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