Recovery hopes in financial services

Many parts of the UK’s financial services sector expect business volumes to rise in the next quarter after 21 months of falls, while optimism about the overall business situation has risen for the first time in two years.

But the banking industry remains under pressure, the joint CBI/PricewaterhouseCoopers financial services survey warned.

John Hitchins, UK banking leader at PwC said:

'The UK banking industry has seen a further decline in confidence but the rate of decline is slowing. While some respondents report an increase in retail business, a sustained upturn is not yet on the cards.

'Business plans for the year ahead are largely defensive. The probable impact of the recession on impairment charges and the impact of new regulation, will remain a significant pre-occupation for the sector for some time to come.'

The three months to June saw levels of business, income and profitability continue to fall, but this was at a much slower pace than earlier this year, suggesting the industry may now be on a gradual path towards recovery.

Insurance companies are the most optimistic about growth in business over the coming quarter, while banks also expect volumes to rise. Building societies have experienced extremely tough business conditions since early 2008, but are now hopeful that volumes, income and profitability will stabilise in the next quarter.

By contrast, securities traders and investment managers expect the recent improvement in their business to be short-lived, with volume declines expected to resume next quarter.

Ian McCafferty, CBI Chief Economic Adviser, said:

'Having seen business volumes tumble continuously for 21 months, some parts of the financial services sector look like they may be starting to come through the worst. The pace of decline in incomes and profitability is slowing, and business volumes are expected to rise in the next quarter.'