Growth Accelerates in UK Financial Services Sector

The UK’s financial services firms saw strong growth in business volumes over the three months to September as profits rebounded and hiring levels increased, according to the latest joint survey of the sector from the Confederation of British Industry (CBI) and PwC.

The survey found that UK business volumes grew at their fastest rate since 2007 and the momentum is expected to continue into the coming quarter. Rising volumes helped push up overall profitability, which bounced back after the previous quarter’s contraction and business volumes are predicted to grow strongly again in the next quarter.

Stronger profits were enough to absorb a spike in costs and they are expected to grow at a similar rate in the next quarter. While costs rose at a record pace, this was offset by a drop in the value of non-performing loans, which fell at the fastest rate since 1996.

Looking ahead, firms say statutory legislation/regulation and competition are likely to be the biggest constraints on business over the coming year, while concerns about level of demand have dropped off sharply.

“The UK’s financial services sector is enjoying its strongest run of growth since 2007, with activity rising across all customer categories and profitability bouncing back,” said Rain Newton-Smith, CBI director for economics. “The spike in costs was off-set by a steep fall in the value of non-performing loans, suggesting that much of the fall-out from the financial crisis is now working its way out of the system.

“With competition one of the top concerns for the coming year, the sector could be moving to a new phase in the recovery where firms are feeling more assured about the level of demand, and are now shifting their gaze to competing for new customers and business. This is reflected in their expectation that sales to new customers will be the main driver of growth in the coming quarter.

“Worries about the impact of legislation at home and from Europe, such as new capital requirements and the prospect of a financial transaction tax [FTT], are also increasingly weighing on the sector.

“However, with strong broad-based growth, financial services firms are relatively upbeat about future prospects, despite some big geo-political risks that remain on the horizon.”

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