Finance firms see strong quarter but future fears mount

● Sales, profits and recruitment all rise ● But sentiment over future worsens

The financial services industry saw robust growth in business volumes, profits and staff hires in the last quarter but sentiment about the future continues to deteriorate, an influential survey today reveals.

The latest CBI/PWC survey of the sector found that optimism has now fallen in five out of the last six quarters, although there was a mixed picture across the industry.

Current business levels continue to hold up well and the second quarter of the year built on the healthy growth in business volumes seen in the first driven by demand from both private and corporate clients.

Some 47 per cent of firms said that business volumes were up, while 3 per cent said they were down, giving a balance of +44 per cent, compared to a figure of +18 per cent in March

Growth was broad-based across sectors, with only building societies reporting no increase in volumes after almost two years of uninterrupted growth. Overall business volumes are expected to rise further over the next quarter, albeit at a slower pace.

The increase in business volumes, combined with a slight fall in average costs, saw a second successive quarter of improving profitability which is also expected to rise further in the next three months, though at a more moderate pace.

Employment also rose solidly in the second quarter, and is expected to continue to grow at a healthy pace in the next quarter.

But overall optimism about the future business environment has continued to fall. Banks and life insurers felt less optimistic than three months earlier, although finance houses, insurance brokers and investment managers felt more optimistic according to the survey which was carried outbeforethegeneralelection result.

Rain Newton-smith, the CBI’S chief economist, said the survey showed there are “mixed messages coming from the sector”.

“Whilst business activity is holding up strongly, optimism took another dive, which likely reflected a mix of Brexit uncertainty and concerns that financial market conditions could tighten,” she said.

Andrew Kail, Pwc’s head of financial services, said factors such as Brexit were weighing on firms.

“Currently the financial services sector is performing well in both business volume terms and underlying profitability. However, another quarter of falling optimism points to an industry harbouring concerns about the future,” he said.

“The UK will continue to be a leading financial centre, but political uncertainty and the ongoing wait for an agreed Brexit blueprint are fuelling more questions about companies’ futures and the performance of the wider economy.”

He said firms were “continuing to fine tune their contingency plans”, which in some cases includes plans for establishing operations in other European Union countries.