The impact of the credit crunch on the UK financial services industry has worsened over the past quarter, as profitability fell at a record pace and business volumes fell at the fastest rate in 17 years, according to a survey by the CBI and PricewaterhouseCoopers. The survey also showed that credit remains expensive and in short supply with the gap between lending and borrowing rates widening more than at any time in the survey’s history. Job cuts have continued and business has been lost across all customer bases. Although the credit crunch has already been underway for 10 months, nine out of 10 firms think it will take more than six months for market conditions to return to normal. Business volumes with industrial and commercial companies, which had been holding up so far during the credit crunch, fell for the first time since March 2005 (a balance of -16%) and are expected to fall more heavily over the coming three months (-33%). Ian McCafferty, CBI chief economic adviser, said: “The impact of the credit crunch on financial services has deepened over the last three months, and conditions look set to remain difficult for some time yet. Although credit markets have been somewhat calmer of late, the interbank lending system is still looking gummed up, and spreads have widened more than at any time in the past 18 years. The problems of the financial sector will echo throughout the wider economy and will drag economic growth down this year and next.”
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