The Financial Institutions Sentiment Survey, now in its fourth year, canvassed the views of more than 100 senior decision makers at a broad range of organisations – from global banks and insurers to intermediaries, investors and asset managers – to explore the key themes shaping their sector.

The report found that more than half of firms (58%) are expecting growth in the UK economy to slow down in the next 12 months – twice as many as held that view in 2018 (29%). Two-thirds of them (67%) expect domestic growth in the coming year to be weaker than G7 peers.

These views were broadly mirrored in respondents’ expectations for the UK financial services sector with 55% forecasting that growth would deteriorate during the year ahead, up from 27% in 2018.

Similarly, most senior executives (54%) said they have become less optimistic about the future of their industry in the past 12 months, up from 40% in 2018.

Meanwhile, two-fifths of firms (40%) expect their own revenues to increase – albeit down from 64% last year – with only 17% seeing income falling next year.

More than half of firms feel they are prepared for the UK’s departure from the EU, with 59% stating they are ready for a ‘no deal’ Brexit with little or no dependency on a transition period and no further extension.

The remainder of firms surveyed are dependent to some extent on a transition period to complete their contingency planning, with almost a third (29%) saying that they have a limited dependency and 12% saying that they have a significant dependency.

Despite the focus these preparations require, the sector continues to invest in the UK, with a third (31%) expecting investment to increase during the year ahead (compared to 24% in 2018). Only 10% of respondents forecast a reduction in investment in their UK business over the next 12 months.

Top risks identified

The three most significant risks cited by survey respondents remained unchanged on last year, with the UK’s departure from the EU top (58%), followed by economic uncertainty (36%), and new regulation (31%).

Significantly, the risk posed by cybercrime (29%) has leapt from eighth place to fourth since 2018.

Last year 46% of respondents said one of their firm’s top three technology investment strategies for 2018 was to improve cybersecurity, behind improving customer satisfaction (49%) and reducing operating costs (48%). In 2019, cybersecurity moves to top of the tech agenda and with greater prominence – 70% are now prioritising it as an area for investment.

Robina Barker Bennett, Managing Director, Head of Financial Institutions, Lloyds Bank Commercial Banking, said: “The past year has presented many challenges for businesses. Against a backdrop of on-going global economic turbulence, it is unsurprising that sentiment among financial institutions towards the sector and the wider economy is lower than in previous years.

“That said, the responses to this survey show the sector’s resilience during difficult times and it is especially encouraging to see that firms plan to continue investing in the UK.

“In 2019, firms are arguably more dependent than ever on technology. With this rapid advancement, the risks from cybercrime are increasing, placing extra pressure on financial institutions to change the way they operate.”

A CFO, by their very nature, is better at holding the purse strings than anyone else, but they’re not always affordable. You might think you have a tight grip on your finances, but without the necessary expertise, time, and visibility, you’ll run into serious problems later on down the line.

 So, what can you do if you can’t afford a full-time CFO? Darren Upson, VP Small Business Europe at Soldo, knows the answer.

The concept of the ‘virtual CFO’ was created to answer that question: they work remotely – seldom on a full-time schedule, and effectively act as an outsourced finance head. Virtual CFOs also benefit as they can deploy their strategic experience and services to a diverse set of clients, without ever setting foot in the actual office.

It’s a service that accounting firms are actually best placed to offer. Most good ones are equipped with the skills and the experience to take on financial administration without the overhead of a full-time finance lead; in fact, we’ve found that many of Soldo’s accounting partners effectively perform this role for clients already.

If you’re running a small business, you might be wondering if you require the service of a virtual CFO. Here are some key signs to look out for.

If you’re struggling to make the right calls, or if you don’t have the information to do so, virtual CFO services can help remove some of the fog around your numbers.

You need better insights to make better decisions

Data-driven decision-making is essential – and CFOs have the expertise to make these informed choices. After all, trusting your gut is high risk and can have unfortunate consequences. At worst, you can lose serious amounts of money; at best, you’ll fail to unlock the true value of some of your decisions. It becomes all too easy to focus on what has happened rather than what could happen in future – making it equally easy to miss the corrective actions that could align performance with strategic objectives.

Transparency and insight are key to making confident, responsible, and proactive (rather than reactive) choices. Virtual CFOs are often experienced accountants and can solve this problem by giving businesses clarity around their finances: helping them make sound, rational decisions.

If you’re struggling to make the right calls, or if you don’t have the information to do so, virtual CFO services can help remove some of the fog around your numbers: delivering meaningful insights into the trends affecting your business – and the opportunities that could be available to it.

You’re struggling to budget and forecast appropriately

This is a huge issue for startups and high-growth SMEs – especially those looking for that all important next round of funding. You need to prove to your investors that you’re on strong financial ground, and that means demonstrating a strong grasp on your budget, your goals, and your forecasting.

Your small business is no doubt full of brilliant people. But it’s probably not full of people who are excellent at financial planning. A permanent CFO might not be a hire you can make right now – but through an accounting firm, a virtual CFO can provide essential longer-term forecasting and analysis.

A permanent CFO might not be a hire you can make right now – but through an accounting firm, a virtual CFO can provide essential longer-term forecasting and analysis.

You’re growing – but your processes aren’t

The bigger you get, the more complicated finances can become. At the most fundamental level, the busier your business is, the harder it is to dedicate time to managing finances. Yet a growing number of employees, agencies, vendors, clients, and other components of managing your books can make the process of getting your accounts in order exponentially more difficult. This is especially true if you’re using manual processes, or if your financial technology isn’t particularly scalable.

So, if your bookkeeper alone can’t handle it, a virtual CFO probably can. Again, as experienced accountants, they can often provide much-needed advice on investing in a technology setup that can support growth – helping you navigate periods of substantial expansion with systems that can bear the weight of your new requirements.

You’re spending, but you don’t know how you’re spending

It’s depressingly simple for expenses to spiral out of control: when employees claim more than they should, it adversely affects your finances; when they claim less than they should, it affects their morale and financial wellbeing.

 This can only be avoided with clear policies around expense management and spending, and that, in turn, requires scrutiny, control, and visibility into incomings and outgoings. Your team should feel empowered to spend when they need to – but with the right limits in place to ensure that they’re doing so within the company’s means.

This spending can sometimes spiral out of control to the point where businesses can struggle to maintain profitability without quite knowing why. If you can’t empower your employees to spend, you can actually stifle growth: when budgets are throttled, staff can’t buy what they need to maximise revenue-generating activities.

A virtual CFO can help solve these problems: advising on measures and technologies to put in place to prevent these issues – as well as creating best practices for how to spend which funds properly.

You might not be ready for a permanent CFO just yet: a small business will struggle to justify the expense. But don’t ever think you’re too small to manage your finances properly.

Budgeting time is here, and you’re likely going to make some safe assumptions on the budgeting based on previous years, experience and forecast. But is are these backed by actual real data? Below John Orlando, CFO at Centage Corporation, talks Finance Monthly through data integration in budgeting, looking at specific trends we can expect in 2018.

At the present moment, the economic future looks good. Unemployment is dropping, inflation is manageable and both the House and Senate passed tax bills that will slash the corporate income tax rate, giving them added cash to grow. Over the past few months I’ve talked to many CFOs who say their companies are eager to expand and they’re actively building growth assumptions into their budgets.

However, even in the best of times, there are risks to growth since at any time some world event can affect economic conditions. Performance monitoring and forecasting are part and parcel to business success in a growth economy, and to the end, 2018 will see some positive data-driven trends emerge that will make it easy for executives to keep a watch over their businesses.

The data goldmine: CFOs and financial teams will look to the robust data-generated HR, CRM and other platforms to feed their budget models

Many mid-size companies have implemented third-party HR and CRM systems, platforms that generate robust datasets. For instance, PEO providers maintain detailed records on every type of employee or contractor who works with the company, as well as their benefit requirements. Salesforce.com tracks virtually any type of sales and metric important to the company. This data, much of it market-tested, offers a level of detail it would take an army to create. By entering or importing it into a budget model, finance teams can create highly detailed and robust budgets in a remarkably short time frame.

Organizations will be more assertive with their assumptions

With robust and accurate data from internal systems populating the budget, executive teams will have access to variance reporting that is far more accurate than ever before. Moreover, this level of specificity will prompt CFOs to be more assertive in their assumptions, as well as provide the confidence management teams need to execute on their growth plans.

Greater accountability in business decisions

Marketing pioneer John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” He wouldn’t say that if he were alive in 2018. The combination of robust data and better performance tracking will make it easier to assess the outcomes of virtually all business decisions (including advertising campaigns). The result will be greater accountability in business initiatives as CEOs obtain the tools to compare current results to the budget, forecasts and what occurred in the past.

With greater accountability comes greater learnings and more success

Armed with a better sense of what worked and what didn’t, business leaders will have keen insight into which activities, markets or initiatives are worth repeating. I can envision companies establishing new metrics with a greater degree of specificity than was possible in the past, supported by data-driven budgets and the ability to track budget versus the actual on a constant basis.

Forecasting will be the next big innovation in budgeting

Looking at the budget software market itself, I believe the next big innovation will be easy forecasting, driven by customer demand. CEOs in particular want streamlined and simple forecasting whether it be monthly, quarterly or half year, and will pressure their providers to deliver it.

I, of course, support this demand. As anyone responsible for a budget knows, within a few months of a budget’s completion, there’s a good chance some or all of it will be out of date. Benchmarks must be reset regularly as market or economic conditions change. If a particular product suddenly begins selling better than another, the company will no doubt want to rejigger resources in order to exploit the opportunity (or retrench in the face of disappointing sales). This is particularly true when companies are embarking on ambitious growth plans.

Growth opportunities and market conditions will move CFOs away from spreadsheets to budget models

Ten years ago, 90% of mid-size companies built their budgets in spreadsheets; today from what I see, it stands at 80%. As more and more executive teams realize the inherent power of a budget, I suspect that number will go down quickly, replaced by budgeting software that allows them to monitor performance much more frequently. But don’t expect a public mudslinging between budget-software providers. Growth in our market will come from first-time customers, rather than

The new Government has to prioritise economic renewal, encourage investment and provide more support to businesses looking to grow according to Michael Izza, ICAEW’s chief executive. In anticipation of the Queen’s Speech later this week, he is urging ministers to take steps now to head off a looming threat to economic growth from weakening business investment, rising inflation and slower wage growth as revealed in ICAEW’s latest forecast.

“We cannot underestimate the impact that the current outlook for the UK has on business confidence,” said Michael Izza. “The vote for Brexit, the outcome of the General Election and looking ahead, the negotiations on leaving the EU all help build uncertainty and create a hiatus in making long term changes to our tax and regulatory systems.

“In the current climate, businesses tend to see the potential risks rather than the rewards of investing. I would like to see the new Government put business and the economy at the top of its agenda, doing more to create a climate of optimism and certainty which will help build confidence. It also needs to send a clear signal to the rest of the world that Britain continues to be an good place to do business, to invest and to trade. Not to do so could put at risk the economic progress we have made over the last two parliaments.”

ICAEW has also published its Economic Forecast for Q2 2017 which has revealed:

• Real income losses for households. Weaker growth in demand for workers, along with upward pressure on non-wage labour costs faced by firms, suggest that wage growth will remain around 2% in 2017. With the Bank of England expecting inflation to remain close to 3% for the year, this will lead to a squeeze in household incomes through the second half of 2017.
• Weaker business investment in 2017, but potential for faster rebound. Investment recovered a little in Q1 2017, but ICAEW continues to forecast a modest fall for the year. However, firms’ financial positions and profit margins remain good, and borrowing costs will remain low for quite some time. But given the uncertain domestic political outlook and difficult Brexit negotiations to come it seems likely firms will continue to exercise restraint in their capital spending.
• Labour market to remain tight. Recent labour market data suggests the degree of spare capacity remains historically low, while BCM evidence shows firms expect to continue to create jobs in the year ahead. At just 0.7% for the year, the rate of private sector employment growth will be the slowest since 2012. Given the continued growth in working-age population, this rate of job creation will be just enough to stabilise the unemployment rate close to the current level.
• Q1 slowdown could prove temporary. GDP growth slowed sharply from Q4 2016 to Q1 2017, with the 0.2% reported in the first three months of this year - the slowest increase since 2014. We expect GDP growth to rebound a little in the remainder of 2017, with exports playing a greater role in driving growth than in previous years. We have nudged up our forecast for GDP growth in 2017, from 1.6% in our last report to 1.7%.
• Long-term fiscal risks still not being tackled. The last fiscal year delivered the smallest budget deficit in cash and GDP terms for almost ten years. But early evidence for 2017-18 suggests that the slowing economy is hurting the UK’s fiscal position.  The election campaign has demonstrated that no consensus exists on how to tackle longer-term risks to the public finances.

Michael Izza adds: “The voice of business needs more prominence within Government’s plans to rejuvenate the economy. The political parties, who largely ignored business in their manifestos, must now engage with the business community if UK companies are to thrive in a post-Brexit landscape.”

(Source: ICAEW)

The European economy has entered its fifth year of recovery, which is now reaching all EU Member States. This is expected to continue at a largely steady pace this year and next.

In its Spring Forecast released today, the European Commission expects euro area GDP growth of 1.7% in 2017 and 1.8% in 2018 (1.6% and 1.8% in the Winter Forecast). GDP growth in the EU as a whole is expected to remain constant at 1.9% in both years (1.8% in both years in the Winter Forecast).

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "Today's economic forecast shows that growth in the EU is gaining strength and unemployment is continuing to decline. Yet the picture is very different from Member State to Member State, with better performance recorded in the economies that have implemented more ambitious structural reforms. To redress the balance, we need decisive reforms across Europe from opening up our products and services markets to modernising labour market and welfare systems. In an era of demographic and technological change, our economies have to evolve too, offering more opportunities and a better standard of living for our population."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Europe is entering its fifth consecutive year of growth, supported by accommodative monetary policies, robust business and consumer confidence and improving world trade. It is good news too that the high uncertainty that has characterised the past twelve months may be starting to ease. But the euro area recovery in jobs and investment remains uneven. Tackling the causes of this divergence is the key challenge we must address in the months and years to come.”

Global growth to increase

The global economy gathered momentum late last year and early this year as growth in many advanced and emerging economies picked up simultaneously. Global growth (excluding the EU) is expected to strengthen to 3.7% this year and 3.9% in 2018 from 3.2% in 2016 (unchanged from the Winter Forecast) as the Chinese economy remains resilient in the near term and as recovering commodity prices help other emerging economies. The outlook for the US economy is largely unchanged compared to the winter. Overall, net exports are expected to be neutral for the euro area's GDP growth in 2017 and 2018.

A temporary rise in headline inflation

Inflation has risen significantly in recent months, mainly due to oil price increases. However, core inflation, which excludes volatile energy and unprocessed food prices, has remained relatively stable and substantially below its long-term average. Inflation in the euro area is forecast to rise from 0.2% in 2016 to 1.6% in 2017 before returning to 1.3% in 2018 as the effect of rising oil prices fades away.

Private consumption to slow with inflation, investment remaining steady

Private consumption, the main growth driver in recent years, expanded at its fastest pace in 10 years in 2016 but is set to moderate this year as inflation partly erodes gains in the purchasing power of households. As inflation is expected to ease next year, private consumption should pick up again slightly. Investment is expected to expand fairly steadily but remains hampered by the modest growth outlook and the need to continue deleveraging in some sectors. A number of factors support a gradual pick-up, such as rising capacity utilisation rates, corporate profitability and attractive financing conditions, also through the Investment Plan for Europe.

Unemployment continues to fall

Unemployment continues its downward trend, but it remains high in many countries. In the euro area, it is expected to fall to 9.4% in 2017 and 8.9% in 2018, its lowest level since the start of 2009. This is thanks to rising domestic demand, structural reforms and other government policies in certain countries which encourage robust job creation. The trend in the EU as a whole is expected to be similar, with unemployment forecast to fall to 8.0% in 2017 and 7.7% in 2018, the lowest since late 2008.

The state of public finances is improving

Both the general government deficit-to-GDP ratio and the gross debt-to-GDP ratio are expected to fall in 2017 and 2018, in both the euro area and the EU. Lower interest payments and public sector wage moderation should ensure that deficits continue to decline, albeit at a slower pace than in recent years. In the euro area, the government deficit to-GDP ratio is forecast to decline from 1.5% of GDP in 2016 to 1.4% in 2017 and 1.3% in 2018, while in the EU the ratio is expected to fall from 1.7% in 2016 to 1.6% in 2017 and 1.5% in 2018. The debt-to-GDP ratio of the euro area is forecast to fall from 91.3% in 2016 to 90.3% in 2017 and 89.0% in 2018, while the ratio in the EU as a whole is forecast to fall from 85.1% in 2016 to 84.8% in 2017 and 83.6% in 2018.

Risks to the forecast are more balanced but still to the downside

The uncertainty surrounding the economic outlook remains elevated. Overall, risks have become more balanced than in the winter but they remain tilted to the downside. External risks are linked, for instance, to future US economic and trade policy and broader geopolitical tensions. China's economic adjustment, the health of the banking sector in Europe and the upcoming negotiations with the UK on the country's exit from the EU are also considered as possible downside risks in the forecast.

Background

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 25^th April 2017. Interest rate and commodity price assumptions reflect market expectations derived from derivatives markets at the time of the forecast. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 25^th April 2017. Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.

(Source: EU Commission)