UK financial sector optimism rises

Optimism in the UK financial services sector rose for the first time in a year this quarter, as employment and volume of business continue to increase, new survey data from the UK Confederation of British Industry and PwC has shown.

The CBI/PwC Financial services Survey, which surveyed 95 financial firms between the February 23 and the March 8, found that the number of firms with optimistic outlooks were up 32% on last quarter. Meanwhile a balance of +19% of firms reported an increase in employment. The volume of business in the financial services sector grew for the eighth quarter running, at well above the average pace. 44% saw volumes rise in the quarter to March, and 21% reported a fall. The resulting balance of +23% was well above the long-run average (+12%).

With outlooks growing more positive, financial services firms reported resumed investment in marketing and IT against a slack period last quarter.

Ian McCafferty, CBI chief economic adviser, said: “Financial services sales volumes and income continued to rise this quarter, putting the sector’s recovery on a firmer footing. Optimism levels and business investment intentions have also improved, in contrast to last quarter as some of the worst risks around the euro area crisis have eased. The unexpected rise in employment is a further encouraging sign for the sector. But with the current level of business regarded as below normal, conditions still remain challenging for financial firms.”

As has been the case over the last year, companies continue to cite uncertainty about demand (+55%) and inadequate net return (+46%) as the factors most likely to limit capital expenditure over the next twelve months. The number of firms highlighting the shortage of labour as a significant constraint increased this quarter (+35%). Level of demand (75%) and competition (52%) continued to be the two most significant factors likely to constrain business expansion in the coming twelve months.

There was marked optimism in banks and building societies, as volumes grew. Finance houses were also optimistic in spite of strongly falling business volumes over the last quarter, expecting a solid rise in volmes next quarter.

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