Posts

Deloitte chief economist comments on inflation figures from the ONS

Commenting on the latest inflation figures, published by the ONS today, Ian Stewart, chief economist at Deloitte, said:

“Inflation hit a low last year and, while still less than half its target rate, is likely to rise gradually over the next year as activity snaps back. Rising unemployment and slack in the economy will limit inflationary pressures and keep the Bank of England’s focus on activity.”

Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.

About Deloitte

In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is a subsidiary of Deloitte NSE LLP, which is a member firm of DTTL, and is among the UK’s leading professional services firms.

The information contained in this press release is correct at the time of going to press.

Regional city development remains broadly resilient

Belfast, Birmingham, Leeds and Manchester have defied market challenges after delivering nearly 2.5 million sq ft of office space in 2020, a rise of over 547,000 sq ft more than 2019, according to Deloitte’s Regional Crane Survey.

The Crane Survey, which monitors construction activity across a range of sectors including offices, residential, hotels, retail, education and student housing, shows that a further 3.61 million sq ft of office space is currently under construction across the quartet of cities. Residential delivery increased nearly 67%, rising by 3,290 to 8,197 new homes completed in 2020. A further 18,912 residential properties are currently under development in the four cities.

The cities have delivered 5,405 student bed spaces in city centres, with a further 3,485 in development as universities and private student accommodation providers continue to invest in both teaching accommodation and student housing.

Simon Bedford, partner and regional head at Deloitte Real Estate, commented: “Regional office construction was strong in 2020, despite some delays in construction caused by lockdowns. The office pipeline has softened somewhat, as developers take a ‘wait and see’ approach to future demand.”

Deloitte’s research indicates the shift to home-working could change how businesses use office space in the future, which, in turn, could influence how local residential areas are used. This could potentially shape the role of neighbourhood set-ups to create more diversity within local centres.

Bedford said: “Our latest CFO survey showed that home-working is predicted to increase five-fold by 2025. The role of the office could flex to meet shifting demands for collaborative and creative space, as organisations revaluate their needs.

“Looking at residential, there’s a major focus for new developments to provide outdoor space and community facilities. This reflects a growing trend towards small-scale retail and leisure offerings as part of wider mixed-use developments, helping to create neighbourhoods and foster a sense of community. In turn, this could have a positive knock-on effect for the high street. For example, our future of the high street research suggests an increased focus on localism and a greater level of commitment to small independent businesses that can easily identify the origin of their goods. Therefore, all things considered, 2020 will be one of the stronger years in overall terms and points towards the ongoing renaissance of our major UK cities.”

Daniel Barlow, managing partner for regional markets at Deloitte, added: “There are real signs of recovery and resilience across the UK, and it’s incumbent on us all to maintain momentum to ensure that all cities, towns and villages level up.”

CFOs anticipate return to growth and lasting change in 2021

Finance leaders expect a return to growth in 2021 with optimism rising to a record high, according to Deloitte’s latest CFO survey. Despite the surge in business optimism, half of CFOs do not expect demand for their own businesses to recover to pre-pandemic levels until the last quarter of 2021 or later.

The Deloitte CFO survey for Q4 2020, which gauges sentiment amongst the UK’s largest businesses, took place between 2nd December and 14th December 2020, so before new COVID restrictions announced on 19th December and the Brexit deal on 24th December.

A total of 90 CFOs participated in the latest survey, including CFOs of 12 FTSE 100 and 44 FTSE 250 companies. The combined market value of the UK-listed companies that participated is £308 billion, approximately 13% of the UK quoted equity market.

Revenues, risk appetite and economic landscape

There has been a sharp improvement in CFO expectations for UK corporates’ revenues this quarter with 71% expecting a rise over the next 12 months, up from 29% in Q3 2020, while over half (53%) of CFOs expect operating costs to rise. For the first time since 2015, a net balance of CFOs are expecting corporate operating margins to increase in the next year.

Risk appetite remains weak with only 19% believing it is a good time to take greater risk onto the balance sheet, however this is up from just 3% in Q1 2020.

Consistent with the idea of a return to growth CFOs’ expectations for inflation have risen markedly since Q3 2020. Over half of CFOs (59%) expect consumer price inflation to be at or above 1.6% in two years’ time, up from 36% three months ago.

While still showing a net negative balance, CFOs’ expectations for hiring, capital spending and discretionary spending have increased from the record lows seen in Q1 2020, with a strong uptick in each category in the last quarter. Expectations for hiring and spending are running higher than the levels seen between 2016 and mid-2019.

COVID and beyond

More than three quarters (78%) of finance leaders expect COVID-19 restrictions on movement and activity to continue through the first half of 2021, while 57% expect these measures to be removed permanently in Q3 2021.

CFOs believe that the pandemic is set to trigger a fundamental change in the business environment. An overwhelming net balance (98%) of CFOs expect flexible and home working to increase – with a five-fold increase in home working expected by 2025.

Similarly, 98% of CFOs expect levels of corporate and individual taxation to rise, two thirds (62%) anticipate higher regulation of the corporate sector and 59% see the size and role of government in the economy increasing.

Ian Stewart, chief economist at Deloitte, commented: “Boosted by the prospect of mass vaccination and growth, business sentiment surged this quarter with CFOs taking the most positive view on profit margins for the last five years. This rebound in sentiment occurred despite a backdrop of continued Brexit negotiations and with two thirds of CFOs believing that a no-deal outcome would have a severe or significant negative effect on the economy. In the three and a half years between the EU referendum and the pandemic CFOs have ranked Brexit as the top business risk for all but two quarters. The announcement of a deal after the survey closed is likely to have offered an end-year boost to CFO sentiment. The survey shows that in the first half of December, CFOs expected restrictions on movement and activity needed to combat COVID-19 to continue for the first half of this year. The announcement of further restrictions after the survey will clearly add to such concerns.

“Business leaders believe the pandemic will permanently change the business landscape. CFOs anticipate a five-fold increase in homeworking relative to pre-pandemic levels by 2025 and believe that the state will be both larger and more active in the long term.”

The impact of Brexit

CFOs think a no-deal Brexit would have been a far greater risk to the economy and to business than the actual outcome of a trade deal. Moreover, they saw either Brexit outcome as having a greater negative impact on the economy than on their own businesses. The large companies on our panel are more confident about their own ability to deal with Brexit than the wider economy’s.

Two thirds (66%) of CFOs saw a no-deal outcome as having a severe or significant negative effect on the economy and 18% expected a similarly negative impact on their own business. Just 20% of CFOs saw a trade deal as a major negative for the economy and this dropped to 7% in relation to their own business.

A majority (61%) of CFOs expect the post-Brexit points-based immigration system to act as somewhat of a drag on long-term economic growth. Around a quarter (27%) expect little or no effect, while 6% expect the new immigration system to support growth.

A net balance of 66% of CFOs expect both goods and services trade with the EU to decrease, while 77% expect a decrease in high-skilled immigration from the EU, with only 24% expecting an increase in skilled immigration from outside the EU.

Strategy and spending

CFOs remain in defensive mode with 49% and 46% respectively rating increasing cash flow and reducing costs as strong priorities. Meanwhile expansionary strategies have risen in popularity slightly since Q3, for example, around a quarter (28%) cite introducing new products, services or expanding into new markets as a priority for the year ahead.

Richard Houston, senior partner and chief executive of Deloitte UK, said: “The pandemic has triggered fundamental and lasting changes in business, with CFOs expecting rising levels of home-working, greater diversification of supply chains and increasing investment in technology.

“CFOs are optimistic about operating in this changing world, with a return to growth expected this year. However, with pandemic restrictions expected to be in place through the first half of this year and elevated uncertainty CFOs are maintaining defensive balance sheet positioning.

“The UK-EU trade deal ends over four years of uncertainty for business and is a far better outcome than the alternative of no-deal. Nonetheless, CFOs also recognise the challenges that leaving the EU may pose in the years ahead. The UK deal has very limited provisions for services, particularly for professional and financial services. These high productivity sectors are major UK successes and make vital contributions to jobs and prosperity. UK businesses urgently need additional clarity on key issues including financial equivalence as well as more information on the specific changes to other cross-border trading services.”

What will 2025 look like for the life sciences and healthcare sector?

As 2020 draws to a close, Deloitte has unveiled ten predictions on how patients, healthcare and life science companies and their staff might behave and operate in five years’ time, based on today’s evidence.

  • Advances in AI-enabled robotics, cognitive automation, digitalisation and life-long learning will help task shifting and role-enrichment, changing the who, what, and where of work.
  • Advanced AI-enabled technologies will also have accelerated drug discovery and clinical trials improving efficiency and efficacy and reducing costs, enabling companies to reverse the decline in the returns from pharma R&D.
  • Predictive prevention models will have led to more precise public health digital interventions – dramatically lowering smoking rates, improving nutrition and reducing loneliness.

Karen Taylor, director, UK Centre for Health Solutions, said: “This year, inevitably, our predictions have been informed by the unparalleled impact of COVID-19 and how people perceive health risks.

“In response to the pandemic, the pharma industry, academia, biotech and governments initiated scientific ventures funded by governments, multilateral agencies, not-for-profit institutions and the private sector. The sharing of data has expedited the search for new treatments and vaccines, with regulators quickly entering into discussion aimed at supporting the most promising innovations.”

Hanno Ronte, partner, Monitor Deloitte added: “Traditional boundaries are becoming more porous, creating an opportunity for new healthcare behaviours and business and funding models from both incumbents and new entrants.

“We have seen a new public appreciation of the contribution that healthcare and life sciences companies make to each countries’ response to the pandemic. There has also been a huge acceleration in the pace and scale of technology-enabled transformation in ways of working and engaging with patients across the whole health ecosystem that has stood out.”

Deloitte announces senior partner appointments

Deloitte has announced the appointment of two senior partners, Hannah Routh and Charlotte Warburton, to strengthen the firm’s global climate change and transport services. Hannah Routh brings 25 years’ experience in the climate change and sustainability sector. Previously a partner with Deloitte China, Hannah was responsible for the Climate Change and Sustainability Advisory practice for Deloitte Asia Pacific. In her new role with Deloitte UK she will be responsible for building the existing team to deliver climate change, decarbonisation and net zero projects for private and public sector clients.

Hannah said: “We see the 2020s as the climate change decade and in response we are expanding the services we provide to organisations in order to support them on their net zero journey. We are committed to doing high quality and rigorous work that makes a positive impact. After 13 years living and working in China, I’m pleased to have come back to the UK at such a pivotal time. As the UK government prepares to host COP26 in November 2021, now is the time for organisations to look urgently at how climate change commitments can be met and the transformation that needs to take place.”

Charlotte Warburton joins Deloitte’s public sector practice as the consulting transport leader, following five years at PA Consulting Group advising global transport, travel and logistics companies, as well as leading their Rail group. She has previously worked on a number of large scale innovation programmes, both in the UK and in the Middle East. A transport and technology specialist, Charlotte will be responsible for growing the firm’s transport consulting practice across the UK and Europe, with a special emphasis on the building the firm’s offering in the North of England. Through national transformation Charlotte will focus on helping companies to achieve their net zero climate targets.

Charlotte commented: “I am looking forward to helping organisations use technology to make better business decisions and to achieve their net zero goals through digital solutions. Being from the North myself, a key objective will be to transform transport infrastructure in the regions as we continue to support the UK’s levelling up agenda.”

Women employed in automotive seek more promotion opportunities

Deloitte’s Women in Automotive Industry research was conducted between June and September 2020 and is based on the responses of 110 women working in the automotive industry. Respondents came from organisations across the value chain in the UK, including original equipment manufacturers (OEMs), suppliers, dealers, and finance companies, and their roles ranged from apprentices through to senior leaders.

Key findings:

  • 68% of women have seen a positive change in the automotive industry’s attitude towards women employees in the last five years; but
  • Half of women feel unprepared to navigate the future of the industry, and this is particularly prevalent in traditional back office functions;
  • 40% would choose a different industry if they could go back; and 50% of women would leave the automotive industry altogether due to lack of promotion opportunities, organisational cultural norms, poor work-life balance and an uncertain industry future;
  • 90% of women feel they are under-represented in leadership positions, with 42% believing an industry bias towards men still exists for leadership positions, driven by organisational cultural norms; and
  • 57% of women do not see a career path to get to the level they want in the auto industry.

Sarah Noble, Deloitte automotive director and founder of Women at the Wheel UK: “The long-term success of any company requires a strong focus on people, yet the automotive industry remains behind many other industries when it comes to gender diversity. Women currently only represent 20 per cent of the automotive workforce, dropping below ten per cent at executive level.

“Our research found that the majority of women have seen positive changes in attitudes towards female employees over the last five years. However, under-representation at a leadership level is still strongly felt. In a predominantly male industry with few female role models at the top, male allies remain critical to the success of gender diversity initiatives.

“Likewise, we know that a lack of promotional opportunities, poor work-life balance and organisational cultural norms are the top factors that would cause a female employee to leave the automotive industry. The COVID-19 pandemic has accelerated trends that were already emerging: normalising flexible working and bringing greater awareness around caring responsibilities. As automotive companies embrace these changes on a more permanent basis, it is also clear that gender diversity can also help gain competitive advantage. Focussing on recruitment, retention and opportunity will be key to making long-term change possible.”