General election top concern for UK companies in 2015 

Political uncertainty ahead of May’s general election and the weakening eurozone economy are hitting confidence across British businesses.

Two surveys on Monday show that firms began the new year fretting about domestic political upheaval and the possibility that geopolitical tensions could escalate in 2015.

The general election is seen as the biggest threat to business this year, according to Deloitte’s latest quarterly poll of finance chiefs at Britain’s biggest companies. The prospect of a hung parliament, in which smaller parties hold the balance of power, is making firms more wary.

“The decline in support for the three main parties, and the rise in support for others, means the risk of political instability and the possibility of more radical policy changes is greater than before,” said Ian Stewart, Deloitte’s chief economist.

“In the past, CFOs had been more concerned with increased financial and economic uncertainty, but they’re now latching onto the more uncertain domestic political landscape.”

Analysts say the election is the hardest to predict in generations, given the surge in support for Ukip, the Scottish National party and the Greens. A hung parliament is possible, raising the prospect of a second election before the end of the year.

Chief finance officers are also more concerned than three months ago about the weak eurozone economy, which is teetering on the brink of deflation, and the possibility of Britain leaving the EU.

Deloitte polled CFOs across the FTSE 100 share index and the FTSE 250 index of mid-size companies between 27 November and 15 December, a time when stock markets were falling sharply and Russia was in the midst of a currency crisis. This appears to have dented confidence, with the first 20 CFOs to complete the survey showing more appetite for risk than three months earlier, but the final 20 showing less appetite.

“The newsflow during the survey included renewed fears over the eurozone, Russia moving towards a deep recession, the oil price plunging, and China’s economy slowing,” Stewart said.

This helped to reduce CFOs’ optimism about their companies’ prospects to its lowest level in two years.

The survey took place before Greece’s debt crisis escalated late last month, triggering a snap general election on 25 January. Events in Athens may also hit business confidence, Stewart suggested, pointing out that the 2012 eurozone crisis also affected UK sentiment.

Deloitte did find finance chiefs more upbeat about UK economic prospects, which could finally feed through to workers’ pockets. They predicted wages at their firms would rise by an average of 2.9% in 2015, probably well ahead of inflation.

“CFOs think the UK economy is going in the right direction, but domestic politics is casting a big cloud,” Stewart said.

The EEF, which represents manufacturers, found that 40% of those surveyed expect the global economy to worsen in 2015, compared with just 5% at the start of 2014. Many factory bosses fear that geopolitical tensions abroad will hit demand this year, with little optimism that Europe or the Middle East will provide much new business growth.

This means that confidence across the sector is rather more restrained than 12 months ago.

Like Deloitte, the EEF is concerned that the general election could hurt the factory sector. “Confidence can be fragile and with an election on the way it is vital that uncertainty and disruption are kept to a minimum,” said Terry Scuoler, EEF’s chief executive. “The realities of 2014 have taken the edge off future forecasts and what we are now seeing as we head into 2015 is a far more muted outlook, tempered by a backdrop of difficulties in the EU and wider geopolitical concerns.”

Around half the companies the EEF surveyed expect to take on more permanent staff this year, but one in three cited significant shifts in exchange rates as a possible threat to their growth.

Source: the guardian – General election top concern for UK companies in 2015

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