Most CEOs at Britain’s biggest companies expect high inflation to reduce their profit margins, and few see the Bank of England getting inflation under control in the next couple of years, says a new survey a week after Tesco warned its profits would drop because of surging inflation, dragging down share prices across the grocery sector.
A quarterly survey from accountants Deloitte showed a record 98 perent of CFOs expect their operating costs to rise over the coming year, and 71 percent expect their operating margins to fall, up from 44 percent in the previous quarter.
“Over the next year, CFOs believe a mix of rising costs and slower growth are set to squeeze margins,” Ian Stewart, chief economist at Deloitte, said.
Last week Tesco, Britain’s biggest retailer, warned its profits would drop because of surging inflation, dragging down share prices across the grocery sector.
Consumer price inflation hit 7 percent in March and government budget forecasters predicted last month it would peak at nearly 9 percent later this year.
Despite the cost pressures, 21 percent of businesses plan to keep capital investment a strong priority though it is down from a record 37 percent in the previous quarter’s survey.
The survey further adds that a record 78 percent of CFOs expect annual inflation in two years’ time will be above 2.5 percent, and a quarter expect it to stay above 3.5 percent. The BoE forecast in February that inflation would fall below 2 percent by the second quarter of 2024.
Economists and financial markets both expect the BoE to raise its main interest rate to 1 percent on May 5 from 0.75 percent now, and markets see rates reaching at least 2 percent by the end of the year.
Most economists think interest rates will be slower to rise, as the cost-of-living squeeze increasingly curbs growth. The CFOs on average expected interest rates to reach 1.5 percent in a year’s time.
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