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

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.’

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