Partner Article

Strong growth in financial sector, but sentiment weakens

Business volume and income grow in the financial services sector in the three months to June, despite many firms indicating that they are less optimistic than they were in the last quarter.

One in six financial firms saw volumes rise over the quarter, while 21% reported a decline, resulting in a balance of 39%. This figure marked a further acceleration in growth rates, and was the ninth consecutive quarter of growth.

10% of businesses surveyed also indicated that the overall level of business was above normal for the first time since June 2007.

This growth has been driven by businesses with overseas customers and financial institutions, while firms with private clients have also seen business rise as a similarly solid pace to the previous quarter. However, with industrial and commercial companies it was broadly flat.

Ian McCafferty, CBI Chief Economic Adviser, said: “The financial services sector has seen another quarter of robust growth, with business volumes, income and profitability all rising solidly once again.

“However, businesses are less optimistic than in the previous survey, have reduced headcount and are reappraising investment plans. Regulatory compliance is an increasing factor shaping investment, activity and intentions.”

Income also rose strongly, with the increase in income from fees, commissions, and premiums, and net interest, investment & trading relative to the previous three months both beating expectations. Further growth is expected next quarter, but at a slightly slower pace.

The majority of firms continued to cite uncertainty about demand and business prospects as the factor most likely to limit capital expenditure. The weak level of demand also remained the factor most likely to constrain business expansion. The number of firms citing a shortage of finance as a constraint to investment picked up, continuing the volatility in this data in recent surveys.

Julian Wakeham, PwC Partner, Investment Banking, added: “The banks continue to be more confident in their own performance than their operating environment.

“Revenue, spreads and profitability are all increasing, but there is tangible concern about the impact of regulation. The survey results imply that regulatory expenditure is limiting the banks’ ability to invest in other areas.

This was posted in Bdaily's Members' News section by Ruth Mitchell .