UK: Optimism in financial sector at 17-year high, CBI/PwC survey shows

Stephen Gifford of the CBI

Stephen Gifford of the CBI - Credit: Archant

Optimism in the financial services sector surged in the three months to September, with firms the most upbeat about their overall business situation for almost 17 years, according to the latest CBI/PwC Financial Services Survey.

Employment also grew, although at varying rates across different sub-sectors, but business volumes fell unexpectedly, mainly in the banking sector.

The headline fall in volumes was driven by falling business with industrial and commercial companies and overseas customers. Volumes were stable with private individuals, which the report’s authors say was disappointing given expectations of growth, while business with financial institutions was the only area to grow.

Nevertheless, profitability rose for the fourth consecutive quarter, as companies managed to offset the fall in business volumes by widening spreads. This reflected gains in a majority of sub-sectors, including banking. Looking ahead, business volumes are expected to recover strongly in the next quarter and, with costs likely to fall, profitability is set to increase further.

Financial services firms also expect to add more jobs in the next three months, although at a slower rate than in this quarter. Stronger demand, changing business strategies and regulatory compliance were identified as major drivers of recruitment.

Stephen Gifford, CBI cirector of economics, said: “With optimism rising and jobs and profitability growing, this is an encouraging quarter for the financial services sector, despite a fall in business volumes in banking.

“Firms are expecting positive momentum to carry into the next three months, alongside a strong recovery in business volumes, which will boost profits further.

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“Financial services companies are less worried than they were about a potential lack of demand, but dealing with regulation is increasingly weighing on plans for business expansion.”

Kevin Burrowes, PwC’s UK financial services leader, said: “Banks’ optimism is increasingly buoyant despite seeing a slight seasonal blip in commercial and industrial volumes. Activity and profitability are expected to grow as the economy recovers, and investment in new products and infrastructure is increasing.

“A reduction in industrial and commercial business down to the quiet summer was expected and is not an indication of a long-term trend. Regulation continues to be the sector’s greatest source of uncertainty, particularly as UK macroeconomic concerns start to fall away.

“We expect the full effect of the UK’s economic recovery to be reflected in bank performance in the coming months, and their solid profitability is supported by predicted cost reductions and increasing focus on growth.”