Demand for financial services in the UK decreased for the first time in five years in the last quarter of 2018 as market volatility, Brexit uncertainty and regulation bite the country´s financial industry.
According to the latest research from CBI/PwC, just 24% of the 84 UK financial firms surveyed reported a rise in business volumes in the final quarter of 2018, against 32% that said to have declined. Volumes were flat or falling for banks, building societies and specialist lenders, while investment managers report the steepest fall in activity since the financial crisis.
The fall is expected to continue, with 20% of firms predicting a further drop in business volumes over the coming quarter, versus 12% forecasting a rise giving place to the weakest outlook since December 2009.
The report also found sentiment among financial services deteriorated further, rounding off three full years of flat or falling optimism.
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 a warning for the outlook.
"It's clear the sector is grappling with a number of other challenges too, from using data to improve customer experiences, to new entrants to the sector. However, with new risks and demands come opportunities. Insurers in particular are pulling ahead, many of whom are moving into areas such as asset management outside of their traditional markets."
Despite this negative outlook, firms said they expected to increase headcount over the next quarter and also boost spending on marketing and IT in the year ahead. Some 70% of firms cited increasing efficiency as a prominent reason for these investments, while 48% pointed to regulation.