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The latest Financial Services Survey published today by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC) reveals that activity in UK financial services grew in the last three months at the fastest rate since September 2007. But this growth was much lower than expected and firms still considered levels of business to be well below normal.
The financial services sector saw its fourth consecutive quarter of improving profitability, though firms expect this to level off in the coming three months. Concern about the impact of regulation and legislation on future business remains high, with a large proportion of firms expecting to spend more on compliance in the coming 12 months.
Asked how their business volumes fared in the three months to June, 38% said that volumes rose and 29% said they fell. The resulting balance of +9% is the most positive since September 2007, but was far weaker than expected. In the next three months, a balance of 63% expects a rise in business volumes, the most positive expectation since December 1993 (+65%).
While banks were the only sector to see business volumes fall in the past three months, building societies' and general insurers volumes were largely flat. Life insurers, finance houses and securities traders saw healthy increases in volumes, investment managers' business grew slightly and insurance brokers saw volumes grow for the first time since March 2009.
Business increased across all the customer groups. It grew at the fastest rate since June 2007 for industrial & commercial companies, financial institutions and private individuals, with a record rate for overseas customers.
While the value of income from fees, commissions and premiums rose (a balance of +17%) at the fastest rate since March 2007 (+23%), the value of income from net interest, investment and trading fell a little (-11%). This disappointed expectations of a small increase, however firms expect both types of income to grow in the coming three months.
John Cridland, CBI Deputy Director-General, said "the modest pick-up in activity in the financial services sector in the past three months fell short of expectations. But firms hope that activity will strengthen over the coming quarter and are now planning to expand their staff numbers."
"This survey was conducted when financial markets were feeling the intense strain from fears over Euro area sovereign debt and, for the first time in over a year, a notable minority of firms were worried that the risk of further market deterioration is high."