Capital Allocation Under Uncertainty: What CFOs Must Rebuild

UK CFOs must rebuild capital allocation around scenario planning and funding flexibility, not fixed forecasts, as geopolitical and trade shifts reorder investment priorities.

According to EY’s UK CEO Outlook 2026 survey, 78% of UK companies have altered their investment strategies in response to geopolitical or trade policy developments this year — 32% delaying a planned investment, 31% accelerating one, and 9% stopping an investment altogether. For CFOs, that volatility means the old annual capital plan, reviewed once against a single base case, is no longer defensible to the board or the audit committee.

Why Is Capital Allocation Now a Scenario-Planning Exercise?

IMD’s CFO Horizons research names scenario planning, capital flexibility and sharper risk modelling as the tools finance leaders are using to sustain operational agility without becoming paralysed by uncertainty. A single-point forecast cannot survive a year in which trade policy, interest rates and supply chains can each move a project’s return by double digits within a quarter.

The practical shift is from an annual capital budget to a rolling model with pre-agreed trigger points: defined conditions under which a project is accelerated, paused or cancelled, decided in advance rather than debated under pressure when the news breaks.

Executive Action:

• Replace the single-case annual capital budget with a rolling model reviewed at least quarterly.
• Pre-agree trigger points with the board for pausing, accelerating or cancelling major projects.
• Stress-test the top five capital projects against a trade-shock and a rate-shock scenario this quarter.

What Should CFOs Do When 87% of CEOs Are Stepping Up M&A?

EY also finds that 87% of UK CEOs expect their organisation’s appetite for M&A to increase over the next 12 months, with 69% actively pursuing deals and 63% also exploring strategic alliances. That puts CFOs in the position of underwriting deal capital and organic investment simultaneously, from the same balance sheet, at a moment when funding costs remain sensitive to rate expectations.

Citi’s UK chief executive, Tiina Lee, has described UK M&A activity as “on fire” this year, driven by large-cap companies simplifying through disposals and by overseas buyers targeting cash-generative British assets. For CFOs, that means underwriting not just outbound deal capital, but the possibility their own company becomes an approach target — with due diligence data readiness as much a finance responsibility as a legal one.

The CFOs managing this well are ring-fencing a defined portion of capital capacity for opportunistic M&A rather than treating every deal as a bespoke funding exercise that competes with the organic plan at the point of decision.

Executive Action:

• Ring-fence a defined capital envelope for opportunistic M&A separate from the organic investment plan.
• Set a maximum leverage threshold the finance function will not cross to fund a deal.

How Should CFOs Rebuild Funding Flexibility?

Funding flexibility means holding more of the balance sheet in instruments that can be redirected quickly — revolving facilities, staged equity commitments and shorter-duration debt — rather than locking capital into structures that assume today’s conditions hold for years. PwC’s 2026 CFO research frames this as a deliberate trade-off: giving up some of the lowest possible cost of capital in exchange for the option value of being able to move fast when conditions change.

PwC’s research also flags that CFOs increasingly treat liquidity headroom as a strategic asset in its own right, not merely a treasury metric, given how quickly conditions can turn on a single policy announcement.

Executive Action:

• Review the maturity profile of existing debt and increase the proportion refinanceable within 18 months.
• Negotiate at least one additional undrawn facility sized to fund the largest plausible opportunistic deal.

What Must CFOs Report to the Board Each Quarter?

Boards now expect a capital allocation report that goes beyond variance-to-budget: current exposure by scenario, headroom against agreed trigger points, and the specific decisions taken or deferred since the last meeting. This is where CFOs can use INFORMD’s capital approval assessment template to standardise how projects are presented, and our executive self-assessment tools to benchmark the finance function’s own readiness against peers.

Executive Action:

• Move quarterly board reporting from variance-to-budget to scenario headroom and live trigger status.
• Brief the audit committee on the top three capital decisions deferred this quarter and why.

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