Chief Financial Officers still rate the UK as a more attractive destination for investment than ‘developed Europe’ or China, according to the latest quarterly CFO Survey from Deloitte.

However, Deloitte’s latest survey of 63 chief financial officers and group finance directors found that the UK’s investment attractiveness has declined significantly over the past decade, dropping 63% – more than any other region – with a net attractiveness score of -12%, in stark contrast to the United States, which leads with a score of 59%. 

Partly, Deloitte’s study puts the UK’s drop in attractiveness down to lingering questions over competitiveness of the economy, which have been running above the long-term average for the past two years, while concerns over US growth declined last quarter.

The data shows that finance leaders reported an increase in economic uncertainty over the last quarter, with 40% saying their business faced a high or very high level of external uncertainty, a one-year high, though uncertainty still remains below the post-2016 average.

Rising geopolitical uncertainty (65%), poor productivity and competitiveness (55%), economic weakness (44%), the effects of climate change (44%), and persistent labour shortages (46%) topped the list of risks business leaders said they face in the coming months.

The uncertainty these issues are causing led just 18% of CFOs to agree that now is a good time to take greater risk onto their balance sheets, the lowest appetite for risk over in five quarters, with a net -26% of CFOs being optimistic about their business prospects, the first time sentiment has turned negative since the second quarter of 2023.

Aside from declining confidence, economic uncertainty is having a more tangible impact on UK businesses. The study found that CFOs expect UK corporates to cut capital expenditure, discretionary spending, and hiring over the next twelve months, with hiring expectations in particular seeing the sharpest fall since the beginning of the pandemic in early 2020.

In light of these expectations, finance leaders’ primary strategies continue to skew defensive, with 52% planning to reduce costs over 2025, followed by 42% prioritising an increase in cash flow, with only 12% reportedly exploring expansion through acquisition in the coming year.

Wages are also taking a hit, with salary increases slowing and CFOs reporting average raises of just 4% over the last year, with expectations that this pace will continue to slow to around 3.2% over the next twelve months.

Despite CFO’s continuing caution, Deloitte found that some finance leaders are beginning to focus on introducing new products and services to new markets (25%), however overall, expansionary strategies are considered among the lowest priorities.

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“With cost control to the fore in the wake of the Budget, CFOs have trimmed expectations for corporate investment, discretionary spending and hiring in the next 12 months,” said Ian Stewart, chief economist at Deloitte.

“But despite a fall in business confidence, we expect to see UK growth picking up over the summer on the back of easy fiscal policy and interest rate reductions, with GDP growth likely to exceed the 2024 outturn and the performance of the euro area.

“2025 seems likely to be a year of continued if modest UK growth. Looking ahead, a continued emphasis on policies to unlock the UK’s potential remain key to shifting the trajectory of activity.”