As the UK economic recovery takes root, it is beginning to feed through to the financial services sector, according to the latest CBI/PwC survey covering the three months to December.
Optimism rose at its fastest rate since the survey began in 1989, as profitability rose for the fifth consecutive quarter.
Business volumes growth was strong across all customer categories, with the exception of financial institutions where they were flat. There was a notable pick-up in business with industrial and commercial companies.
Both business volumes and profitability are expected to increase again next quarter.
The CBI/PwC Financial Services Survey also shows that employment grew at its fastest pace since 2007 and expected employment growth for the first quarter of 2014 is the strongest since the survey began.
Based on the latest CBI/PwC survey figures and their historical relationship with ONS workforce jobs data, we estimate that financial services jobs increased by 10,000 in the fourth quarter of 2013 and expect a further rise of 15,000 in the first quarter of 2014. That would take employment in the sector to 1.16m in Q1 2014 (52,000 lower than Q4 2008).
Firms’ capital spending intentions for the next 12 months are positive across all categories for the first time since the financial crisis. Companies are now much less concerned about the impact of the level of demand and regulation on business in the year ahead, and more mindful of skills shortages, the capacity of their systems to deal with new business and stronger competition.
Matthew Fell, CBI director for competitive markets, said: “As the recovery takes root in the wider economy, it is beginning to feed through to financial services firms. Things are starting to look more ‘normal’ after five years of volatility.
“All the key indicators – optimism, business volumes and profitability – are up. But it’s particularly encouraging to see longer term confidence indicators like marketing spend, employment and investment spend also rising strongly.
“It’s also telling that financial services firms are now less worried by levels of demand and regulation and are instead concerned about a skills crunch, their systems capacity and stronger competition.”
Kevin Burrowes, PwC’s UK financial services leader, said: “Banking sentiment continues to improve strongly, mirroring the UK economic rebound. We hope that as trust is earned and rebuilt over time, banks will increasingly be recognised positively for their role in society and their contribution to the UK economy.
“The sector is enjoying growing revenues and volumes of business. Profitability is increasing too. The sector’s confidence is illustrated by its rising headcount, a striking reversal from one year ago.”
69% of financial services firms said they felt more optimistic about the overall business situation, while 1% said they were less optimistic, giving a balance of +68% – the highest since the survey began in 1989
53% of firms said that business volumes were up, while 7% said they were down giving a balance of +46% – the highest since June 2007 (+51%)
Business volumes increased with industrial and commercial companies (+30%), private individuals (+34%) and overseas individuals (+11%). They were flat with financial institutions (-2%)
Looking ahead to the next quarter 52% of companies expect business volumes to increase, while 2% said they will decrease, giving a balance of +50% – the highest since June 2010 (+63%).