High cost of borrowing puts firms on their guard

Credit is at its most expensive in more than a decade, finance chiefs have said as they forecast that revenues will fall over the next year.

The cost of borrowing money has reached its highest level since 2010, according to a survey of 87 chief financial officers (CFOs) by Deloitte, the management consultancy.

Forecasts have become significantly more pessimistic about the cost of finance since the government’s mini-budget at the end of last month.

Seventy-seven per cent of finance chiefs rated the level of economic and financial uncertainty as high or very high, up from 61 per cent in the previous quarter and its highest level since the start of the pandemic. CFOs are now predicting there is a 78 per cent chance that Britain will fall into a recession within the next year.

More than half said that their priority was now reducing costs, which has led to a reduced focus on strategies to grow their business.

Fixty-six per cent said that credit was costly, while 39 per cent said that it was not easily available. As a result, taking on debt through bank borrowing or issuing bonds has become much less attractive for companies over the past year. CFOs now prefer equity, or selling shares, as a source of finance, a trend last seen during the credit crunch that followed the global financial crisis of 2008.

The cost of borrowing across the world’s biggest economies has increased over the past year in response to a sharp rise in inflation fuelled by the high price of wholesale energy. The Bank of England, which was the first of the major central banks to start raising rates last December, has implemented six back-to-back rate rises in as many meetings, taking the official interest rate from 0.1 per cent to 2.25 per cent. Interest rates are expected to rise again next month, with financial markets pricing in a one percentage point increase to 3.25 per cent.

Ian Stewart, chief economist at Deloitte, said: “A 12-year period of easy credit conditions is drawing to an end. Corporates are seeing a reset in the cost and availability of credit. Not since the credit crunch have CFOs rated debt — whether that’s bank borrowing or corporate bonds — as being less attractive as a source of finance for their businesses than they do today.”

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High cost of borrowing puts firms on their guard