Revenues, profitability and confidence at UK financial services firms have all taken a beating in the past three months, according to a survey that has revealed the sharpest deterioration in the sector in years.
Although still unpopular in the wake of the financial crisis, the industry that includes banks, insurers and investment managers is important to the broader economy. It makes up over 7 per cent of Britain’s GDP, around 9 per cent of our exports and 11 per cent of all tax receipts.
The quarterly survey by the Confederation of British Industry and PwC showed that optimism has plunged at the fastest rate since September 2008, when Lehman Brothers collapsed, triggering panic around the world. Only 5 per cent of firms are now more upbeat about overall business in financial services than three months ago, while 62 per cent are less optimistic, giving a balance of -56 per cent.
Business volumes declined in the past three months at the fastest pace since September 2012. Banks experienced a particularly alarming fall, with the volume of business dropping more rapidly than at any time since March 1991.
Meanwhile, the fall in profits across financial services firms was the worst since June 2009, when Britain was still mired in recession. And firms expected profitability to slide further in the next three months.
“Quarter after quarter after quarter, optimism continues to drop in the financial services sector,” said Rain Newton-Smith, chief economist at the CBI, a business lobby group.
He noted that confidence is being hit by worries of a no-deal Brexit, adding: “The government cannot ignore the voice of this bellwether of the domestic economy and one of the UK’s most important globally competitive sectors. No ifs, no buts, the government must heed the call to avoid a no-deal Brexit and secure an ambitious deal with our largest trading partner.”
Whether or not Britain leaves the EU with or without an agreement, financial services firms said Brexit will have a negative impact on their business over the coming year.
A wider survey released on Monday found the same view among UK firms across other sectors, with concerns intensifying sharply since August.
In a rare positive finding, the CBI/ PwC survey revealed that employment across financial services grew at the fastest pace in over a year. Andrew Kail, head of financial services at PwC, said the increase was most probably a response to greater regulation requirements.
The poll was conducted between 14 August and 13 September, with 83 firms replying.
