UK Financial Services Growth Slowed In Last Quarter

by Philip Morton, Investors Offshore.com

09 October 2006

Financial services firms have seen growth in business volumes slow sharply over the past quarter, but are optimistic that business will recover, according to the latest Financial Services Survey published last week by the Confederation for British Industry (CBI) and PricewaterhouseCoopers.

The figures for the past quarter saw income fall for the first time in two years, profitability growth flatten, and recruitment slacken - broadly as expected in June.

However, according to the CBI, the three months ahead look far more upbeat. Income and business volumes are expected to recover and profitability to strengthen, even if modest job cuts are predicted and marketing and investment plans for the year ahead have been scaled back.

The survey, which has been conducted since 1989, showed the slowdown in overall growth was driven primarily by weaker business with private individuals and financial institutions.

Richard Lambert, CBI Director-General, observed that: “After a year of solid growth, the slower growth in business volumes in this sector is disappointing, even if expected."

"Thankfully it seems to be a temporary lull, and next quarter's forecast recovery is heartening, with volumes and profits returning to the rates of growth enjoyed for much of the past year. But modest job cuts are expected and spending plans for the year ahead have been scaled back."

"The financial services industry is a real powerhouse of the UK economy, and it is a sector in which the UK leads the world. But policy makers must not take it for granted - they must nurture it and protect it from undue restrictions at home or abroad."

Examining the survey results by sector, the CBI/PwC survey revealed that there was an unexpected deterioration in banking conditions over the past quarter, but this should prove to be temporary. Volumes and values of business, and profits all fell markedly. However, banks are optimistic that strong growth in volumes and profits will resume over the next three months. Meanwhile, job cuts are expected to intensify.

After very buoyant conditions in recent quarters, the poll revealed that securities traders suffered a difficult quarter. Volumes and values of business and profits all fell steeply. However, the declines are not expected to continue, with business volumes and profits set to stabilise. Nevertheless, securities traders remain pessimistic about the overall business situation.

For fund managers, meanwhile, volumes and values of business fell for the first time in two years. However, robust growth in average commissions, fees and premiums over the past quarter enabled strong growth in profits to continue. Fund managers are optimistic about the overall business situation, and expect volumes and values of business to recover. As such, further significant recruitment is expected.

The survey was conducted between 24 August and 6 September 2006.

Recommended