With a looming recession in the U.K., debt finance is highly unattractive to CFOs.

Some countries will be hit harder by a recession than others as the global economy is expected to contract this year, but the U.K. is in trouble. A Financial Times survey released on Monday found the U.K. is facing a “deeper and more prolonged recession” than any nation in the G7, a global policy forum representing seven of the world’s most advanced economies, Fortune reported. About four-fifths of economists said the U.K. will experience a much longer recession than its peers. They predict a rough 2023 and a potential return to normal by 2024.

“The U.K. suffers from an energy shock as bad as Europe’s, an inflation problem…as bad as the U.S., and a unique problem of lack of labor supply from the combination of Brexit and the NHS crisis,” Ricardo Reis, a polled economist and professor at the London School of Economics, said in the report.

Corporate distress has accelerated faster in the U.K. than in the rest of Europe and reached a two-year high, according to the recent Weil European Distress Index.

A key finding of Deloitte’s UK CFO Q4 2022 survey released on Tuesday found CFOs view bank borrowing and debt issuance as the least attractive it has been since the financial crisis. As interest rates are at 3.5%, finance chiefs rate credit as being more expensive than at any time since 2009, according to the report.

“When interest rates were at very low levels, debt finance easily eclipsed equity as a source of finance,” Ian Stewart, chief economist at Deloitte, said in a statement. “CFOs now see them as being roughly on par.”

Seventy percent of CFOs rate credit as costly, meanwhile 45% say that new credit is hard to get. Just 28% say they expect their company’s demand for credit to increase over the coming 12 months. However, Stewart also noted that CFO “concerns about energy supply and prices have fallen back,” he said. The findings are based on a survey of 78 CFOs participated, including those at FTSE 100 and FTSE 250 companies.

The Office for National Statistics reported last month that Britain’s inflation rate in November was 10.7%, down from a 40-decade high of 11.1%. On average, CFOs believe inflation will fall to 5.8% in a year’s time. However, in the next two years, they expect it to stand at 3.3%, which is above the Bank of England’s 2% target. 

In late September, the U.K. experienced market turmoil after government proposed tax-cutting plans sent bond and currency markets spiraling. If the U.K. markets are any indication, due to this macroenvironment, the era of putting in place fiscal stimulus, cutting taxes, and greatly replacing lost income without inflation or rising interest rates being a major concern could be over.

Deloitte’s Q4 report on the sentiments of CFOs in North America released on Dec. 14, found net optimism of finance chiefs for their own companies fell for the third quarter in a row, and the lowest level since Q2 2020. The talent crunch also remains major concern.

Each quarter, Deloitte tracks a series of metrics around CFO expectations in revenue, earnings, dividends, cap spending, domestic hiring, and domestic wages, Steve Gallucci, the global and U.S. leader of Deloitte’s CFO Program, told me last month. “When you look at fourth quarter 2022 versus third quarter 2022 all those measures came down,” he said. The biggest declines were in year-over-year growth expectations for revenue and earnings at 4.2% and 2.9%, respectively, down from 6.2% and 6.4% in Q3, according to the report.

“Cost management going into 2023, with the continued uncertainty in respect to inflation, is going to be critical,” Gallucci said. 

In the U.S., consumer prices rose 7.1% in November from a year ago, down from 7.7% in October and a high of 9.1% in June. In December, the Federal Reserve announced a half of a percentage point interest rate hike, its seventh rate hike in an effort to tame inflation. The minutes from the Fed’s meeting Dec. 13-14 meeting were released on Wednesday. “Participants stressed that the committee’s ongoing monetary policy tightening to achieve a stance that will be sufficiently restrictive to return inflation to 2 percent is essential for ensuring that longer-term expectations remain well anchored,” according to the document.

CFOs across the globe are undoubtedly preparing for what many are predicting to be a roller coaster year.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

The burden of debt repayments rose for U.S. companies in the third quarter of 2022, according to a new S&P Global Market Intelligence report. The median interest coverage ratio fell from 8.98 to 8.19 in the third quarter of 2022. This metric tracks the ability of companies to cover interest payments on their debt by dividing earnings before interest and taxes by the cost of debt-interest payments of companies rated BBB- or higher by S&P Global Ratings. The decline breaks "a near-continuous increase" in the ratio since the second quarter of 2020. This indicates that "companies are feeling the pinch of rising borrowing costs and a weaker economy," according to S&P Global Market Intelligence.

Going deeper

Willis Towers Watson's (WTW) annual analysis of the funded status of the nation’s largest corporate pension plans found the 10-year march toward full funding lost momentum in 2022. The funded status ended 2022 at 95%, the same level it began the year as weak investment returns offset lower pension liabilities created by higher interest rates, according to WTW. The funded status had been rising steadily since 2012 when it stood at 77%. The findings are based on an analysis of pension plan data for 356 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal year-end date. Overall investment returns are estimated to have averaged -19% in 2022, although returns varied significantly by asset class, WTW found.

Leaderboard

Tom Boyle, CFO, has been appointed to also serve as chief investment officer at Public Storage (NYSE: PSA), an owner, acquirer, developer, and operator of self-storage properties, effective Jan. 1, Boyle’s additional role as chief investment officer will include development, redevelopment, acquisitions, asset management, and third-party management. He joined Public Storage in 2016, serving as CFO of operations, until his appointment as the company’s CFO in 2019. Before joining Public Storage, Boyle served in roles of increasing responsibility with Morgan Stanley since 2005, from analyst to his last role as executive director of equity and debt capital markets.

Zahir Ibrahim was named CFO at BARK, Inc. (NYSE: BARK), e-commerce and content company for dog lovers, effective immediately. Most recently, Ibrahim served as CFO and chief administrative officer at the startup Do Good Foods LLC. Before that, he served as CFO of KIND LLC, a healthy snacks company. Ibrahim also previously served as CFO at Annie’s Inc., a natural and organic food company. He also held several roles at Molson Coors Brewing Company culminating with VP, controller, and chief accounting officer. Earlier in his career, Ibrahim served in senior financial positions at CML Innovative Technologies, and Elementis Specialties, and Pirelli Tires.

Overheard

"The environment remains challenging, and our customers are taking a more measured approach to their purchasing decisions. With this in mind, we’ve made the very difficult decision to reduce our workforce by about 10%, mostly over the coming weeks."

—Salesforce cofounder and CEO Marc Benioff wrote in an email to staff on Wednesday, Fortune reported. U.S.-based employees affected by the layoffs will be entitled to five months of pay as well as insurance, career resources, and other benefits during their transition.