First Growth in UK FS Business Volumes for Two Years, But FI Firms Still Wary

Financial services firms showed the first signs of recovery in the last three months, after almost two years of falling business volumes and profitability, according to the latest Financial Services Survey by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC).

Business volumes across the sector grew for the first time in two years, although levels of business were still considered to be well ‘below normal’. Firms are more optimistic about the overall business situation compared with three months ago, but they remain worried that a lack of demand will hamper business expansion in the coming year.

Asked how their business volumes fared in three months to early September, 32% said that volumes rose, while 24% said they fell. The resulting rounded balance of +7% is the first increase in two years and the highest since September 2007, when it was +23%. Firms had expected growth to return to the sector in the June survey.

Despite there being some tentative signs of recovery, differences remain between individual industry sectors. Securities traders and investment managers have seen strong volume growth over the past quarter, while banks and building societies expect that growth will resume over the next three months. By contrast, life insurers and insurance brokers anticipate further, albeit slower, falls in business volumes.

Ian McCafferty, CBI chief economic adviser, said: “After nearly two years of exceptionally tough operating conditions, signs of a brighter outlook are appearing in the financial services sector. Business volumes have increased, for the first time since the onset of the credit crunch, and a fall in running costs helped lift profitability. This is concrete evidence of the gradual path to recovery that firms were anticipating in our June survey of the sector. Future demand is still a major concern for financial services firms, however, and further pain will continue to be felt in job losses and lower investment.”

Supplementary questions on the credit crunch showed firms placing an increasingly low likelihood on financial markets deteriorating further. Whereas in March only 1% said the risk was low, this had increased to 25% in June, and rose to 49% in September. However, the vast majority (96%) think it will take more than six months for normal market conditions to resume, and two-thirds of firms say they think the UK has become less competitive as a financial services centre.


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