The latest CBI/PwC Financial Services Survey has reported that the majority of financial services firms reported rising business volumes in the three months to December.
Overall business volumes rose at the fastest pace since the mid-1990s, with demand from both UK households and corporates underpinning solid growth across most industry sectors.
Building societies were the exception, with business volumes falling unexpectedly. Firms expect similarly healthy growth to continue next quarter, with building societies expecting volumes to recover.
Financial services firms reported strong income growth, particularly from fees, commissions and premiums, but also a solid performance from net interest, investment and trading income. Alongside falling costs, that meant profitability improved at a lively pace for the second successive quarter. Profit growth was seen across all sectors, with the exception of life insurance.
“The upswing in growth among financial services firms continues on a solid footing, with overall optimism, business volumes and profits up,” said Rain Newton-Smith, CBI director of economics.
“Building societies have struggled this quarter, likely as a result of the impact of the Mortgage Market Review, constrained buyer affordability in London and the South East, and stronger competition in the mortgage lending market. But a strengthening of household finances, continued low interest rates and the recent changes to stamp duty suggest that conditions in the sector should pick up ahead.
“The employment picture was mixed last quarter but firms are boosting their spending on training. It’s encouraging to see the majority of companies planning to increase their investment spend, especially on IT and marketing, to increase efficiency and to reach new customers as competition and technology change the nature of the sector.”
Kevin Burrowes, UK financial services ‘leader’ at PwC, said: “Financial services firms continue to be optimistic, but we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers.
“The increased investment in land and buildings is a sign of banks looking at expanding into cities outside London such as Manchester and Edinburgh due to high cost and capacity issues in the capital.
“Employment has fallen, but training expenditure has increased as banks face desired skill shortages such as compliance experts and we expect this trend to continue.”
Employment fell in banking and general insurance, dragging down overall employment. A somewhat faster decline is expected next quarter, with only four out of the eight sectors expecting to raise their headcounts. But firms are spending more on training, which rose at the fastest pace on record in the three months to December.
Overall marketing spend and investment intentions for the year ahead were positive across the board. IT investment is predicted to increase to the greatest extent, with all sub-sectors planning to step up spending in this area.
The need to increase speed/efficiency is the most widely cited motivation for higher investment, with a desire to provide new services and reach new customers becoming increasingly important (the latter setting a survey record).
