Optimism falls as challenges increase for financial services, survey finds

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Sentiment in the financial services sector deteriorated in the three months to September, as firms digested the challenges of lower interest rates and the uncertainty caused by the vote to leave the European Union (EU), according to the latest CBI/PwC Financial Services Survey.

The quarterly survey of 115 firms – the first since the Brexit vote – found that optimism about the overall business situation fell for the third consecutive quarter, which was the longest period of declining sentiment since the depths of the financial crisis in early 2009. Optimism was broadly stable in the life and general insurance sectors and fell only slightly among banks, but it deteriorated sharply among finance houses, building societies and investment managers.

Meanwhile, firms saw healthy growth in overall business volumes in the three months to September, with only finance houses reporting a drop in activity. Growth in overall business volumes is expected to slow in the coming quarter, but to remain decent from a long-run perspective.

Growth in profits also picked up in the quarter to September, having slowed over the previous year, but is expected to ease back again over the next quarter.

Asked about the effect of the UK’s vote to leave the EU, just over half of all financial services firms said the general impact of the vote was negative, whereas only around one in ten firms pointed to a positive impact. The main cause for concern was market volatility, with just under three quarters of firms reporting a negative impact in this area. In the wake of the vote, the top three risks facing financial services firms are:

  1. The impact on the economy.
  2. Changes in access to EU markets.
  3. The prospect of lower yields.

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