CBI/PwC survey shows financial services optimism falling
Optimism in the financial services sector took a turn for the worse in the three months to September, new data has shown.
According to the latest CBI/PwC Financial Services Survey, optimism dropped by 30% during the third quarter, marking the tenth quarter of declining sentiment in the last 11 quarters. This is the longest period of flat or falling sentiment since the global financial crisis of 2008.
Of the 100 firms surveyed, only 6% said they were more optimistic about the overall business situation compared with three months ago, whilst 36% were less optimistic, giving a balance of -30%. Barring December 2016 when the drop was 35%, this was the steepest fall since the financial crisis.
Overall, business volumes increased slightly in the three months to September, although the level of business dipped slightly below normal. While many sectors enjoyed higher business volumes, notably insurers, banking volumes were stable for a second successive quarter, while investment managers reported a contraction in volumes.
Looking ahead to the next three months, overall business volumes are expected to be unchanged, with 15% of firms expecting volumes to rise while 14% expect them to fall.
Rain Newton-Smith, CBI chief economist, said of the results: “While it’s good to see that demand for financial services is holding up, it’s simply impossible to ignore the dangerous strains on the sector arising from the combined challenges of a subdued economy, Brexit, regulation and rapid advances in technology.”
Newton-Smith said for the sector to remain one of the UK’s most attractive economic assets, it is fundamental that a withdrawal agreement with the EU is agreed, which would provide “temporary but essential relief” for financial services firms of all sizes.
The findings showed profits across the sector as a whole were flat in the three months to September, for a second successive quarter. Several sectors saw profits fall, with investment managers reporting the sharpest drop since the financial crisis.
Investment intentions for the year ahead focused on marketing and IT, although the pace of growth in IT spending is expected to slow. The survey found technology is altering recruitment, with over half of firms citing changes in the headcount driven by technology-driven efficiency gains.
Looking ahead over the next 12 months, the survey found the most significant potential constraints on business growth were expected to be level of demand (58%), legislation and regulation (52%) and availability of professional staff (48%), the latter marking a record high for the survey.
Newton-Smith commented: “In the long run, it’s clear the sector needs to think more creatively about recruiting and retaining its skilled staff. Investing in employees with the right skills – especially technological skills – and ensuring the sector offers a more diverse and attractive career path are key,” she added.
Andrew Kail, head of financial services, PwC, commented: “There are understandable concerns around the shockwaves created by Brexit alongside dealing with the impacts of regulation and technology. Addressing how these issues manifest themselves must be at the heart of firms’ contingency plans over the next six months. As the Brexit negotiations continue companies across the sector have the chance to galvanise themselves and their clients against any potential fallout.”