Research by the CBI and PricewaterhouseCoopers (PWC) revealed that the financial services sector has had four consecutive quarters of improving profitability. However, firms believe this will level off in the next quarter.
The impact of regulation and legislation in future business remain the industry’s key concerns, with many firms expecting to spend more on compliance in the next 12 months.
Of those surveyed, 38% said their business volumes had risen, while 29% said they had fallen. The balance of +9% is the most positive since September 2007, but far weaker than expected.
The industry is also more positive than at any time since December 1993, with a balance of 63% expecting a rise in business volumes over the next quarter.
Banks were the only sector to see business volumes fall in the past three months, while building societies’ and general insurers’ volumes were largely flat.
John Cridland, deputy director-general of the CBI, said: “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.
“A high proportion of firms are worried about the impact of prospective regulation on their business, and many remain concerned that red tape will hamper growth prospects in the year ahead. Firms have also become more worried about increased competition within the sector, particularly from new entrants and from overseas.”
Andrew Gray, UK financial services consulting leader at PWC, said: “The picture remains challenging for building societies as they face weak demand for their core products and a challenging funding environment.
“The increase in volumes reported during the first quarter has now stalled and levels of business remain below normal. Funding remains an issue for the sector and is seen as a major limitation on business. Added to this, competition for retail deposits remains fierce forcing the sector to look for new ways to raise loss-absorbing equity.”
However, he added: “On a more positive note, the value of non-performing loans is expected to decline for the first time since the end of the housing boom.”
