UK FS Industry Shows Optimism for the First Time in Two Years

Optimism in UK financial services has risen for the first time in two years, with many part of the sector expecting business volumes to rise in the next quarter after 21 months of decline. Nearly a third of FS firms polled (29%) anticipate a rise in business volumes over the next three months. The Confederation of British Industry (CBI)/PricewaterhouseCoopers (PwC) survey also marks the slowest rate of decline since business volumes started falling in March 2007, with a balance of -23% seeing profits rise compared with -47% three months ago.

Ian McCafferty, CBI chief economic adviser, said the rise in optimism should be taken in context: “Having seen business volumes tumble continuously for 21 months, some parts of the financial services sector look like they may be starting to come through the worst. [But] although demand looks like it is beginning to recover, it is doing so from a very low base.”

This is reflected in the continued decline in staff levels in the sector, which continued to fall sharply, although at a slightly lower rate than last quarter – 13,000 jobs are predicted to be lost in the third quarter 2009, compared with 17,000 in the first quarter. A balance of 33% of firms surveyed reported a fall in the numbers employed, while 28% expect to reduce their headcount in the next quarter.

In spite of overall signs of optimism, the picture remains very mixed across different sectors. The general insurance sector reported increased optimism, despite a decline in profitability caused by a fall in income values outweighing the advantage of falling costs. With banks, where business volumes fell at the fastest rate since March 1991, optimism remained firmly negative, although business volumes are predicted to increase, and the decline in employment is set to ease further. By contrast, securities firms predict a further decline in business volumes and profitability over the coming quarter.

John Hitchins, UK banking leader at PwC, said that while some respondents report an increase in retail business, a sustained upturn is not yet on the cards. “Business plans for the year ahead are largely defensive. The probable impact of the recession on impairment charge and the impact of new regulation, will remain a significant preoccupation for the sector for some time to come.”


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