Call for UK finance firms to act after gloomy end to 2018

● Demand falls for first time in 5 years as economic backdrop ‘takes toll’ on firms

Financial services businesses looking to flourish this year are being encouraged to “concentrate on issues they can control”, after business volumes and sentiment deteriorated in the last quarter of 2018, according to the latest study of the sector from CBI/ PWC published today.

The survey of 84 firms found that a balance of -7 per cent said business volumes were down, a drop from +12 per cent in the previous three months and marking the first contraction of demand since September 2013. Meanwhile, optimism remained in negative territory, having declined in all but one quarter since the start of 2016.

The quarterly study unveiled a “marked” split in business conditions between subsectors. Sentiment held up among insurers amid a continued expansion in their business volumes, but these were flat or falling for banks, builda ing societies and specialist lenders, for example.

Overall business volumes are expected to fall at a similar pace over the quarter to March, with a balance of -9 per cent of firms expecting them to edge down further, the first time growth expectations have turned negative since December 2009.

Profits in the sector as a whole remained flat for a third successive quarter, and in the quarter to March is expected to fall for the first time in more than three years, as a result of a more widespread deterioration in expectations across the industry. However, firms expect to increase headcount in the quarter to March.

Rain Newton-smith, CBI chief economist, said: “A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK’S financial services sector. Financial services are a bellwether for the wider economy.

“The persistent weakness in optimism and the deterioration in expectations sound warning for the outlook.”

Andrew Kail, head of financial services at PWC, said last year “ended on a more pessimistic note” than in previous quarters for many UK financial services workers.

Flagging contributory factors such as political and Brexit-related uncertainty, and competition from established peers as well as new market entrants, he added: “UK financial services firms looking to prosper in 2019 should concentrate on issues they can control. Most importantly, by focusing on clear strategies for delivering value through products and services which meet their customers’ needs, maximising the efficiency of delivering these services – keeping operating costs under control – and using technology to augment the quality and efficiency of activities across their business.”

Separately, private sector business activity in Scotland fell for the first time in ten months in December. The latest Royal Bank of Scotland purchasing managers’ index fell into contraction territory at 49.3 last month, from 52.2 in November.