Third quarter of strong growth for financial services
- Published on Monday, 04 April 2011 09:20
- Posted by Scott Buckler
The UK financial services sector saw activity grow strongly for the third quarter in a row, in the three months to March, according to a new survey published today (Monday 4th April)
Firms considered the level of their business is only slightly below normal, the best result since the financial crisis began in September 2007, according to the latest CBI/PwC Financial Services Survey.
Asked how their business volumes fared in the three months to March, 33% said that volumes rose and 11% said they fell. The resulting balance of +22% exceeded firms’ expectations (+15%), and was only slightly below the balances of +27% and +28% recorded in the preceding two quarters. Growth in business is anticipated to pick up a little further in the coming three months (+30%).
Business volumes grew across the sub-sectors, apart from banking, where volumes were stable, and finance houses where they fell.
Business grew across each of the customer groups. Growth was particularly strong for business with private individuals, as volumes rose at the fastest pace since December 1996. Growth was slower for business with industrial & commercial companies, financial institutions and overseas customers. Business is expected to grow across all the customer groups again over the next three months.
Both the value of fee, commission and premium income and the value of income from net interest, investment and trading rose at the fastest rate since March 2007 in the past three months. Slightly faster rises are anticipated next quarter.
Ian McCafferty, CBI Chief Economic Adviser, said:
“A third quarter of strong volume growth shows the financial services recovery is building strength. It is particularly good news that firms consider their level of business to be only slightly below normal, for the first time since the financial crisis began in 2007.
“While business with private individuals has again shown the fastest growth, business with companies also shows some signs of improvement. Firms’ profitability has improved due to higher incomes and another big drop in the value of non-performing loans.”
Total operating costs (excluding costs of funds) increased at the fastest pace since September 2007, the second consecutive rise in costs after a two-year period of reductions. Average operating costs per transaction rose slightly, ending an eighteen-month sequence of falling costs. Both types of cost are predicted to rise again next quarter.
Average spreads narrowed for the first time in a year, and at the fastest pace since June 2007. Firms expect them to be stable next quarter.
For the second quarter running, firms have had success in bringing down the value of non-performing loans, once again at the fastest pace since December 1996.
Despite the cost pressures and narrowing of average spreads, a combination of rising incomes and the fall in the value of bad debts led firms’ profitability higher in the past three months, and at the fastest rate since December 1993. A similar improvement is expected in the coming quarter.
Numbers employed fell for the second quarter in a row. Staff turnover also rose, and is expected to be only marginally higher next quarter. Staff costs, as a proportion of total costs, are expected to fall further next quarter.
Firms are planning to invest more over the next 12 months across land and buildings, and information technology. Plans for investment in marketing in the coming year are seeing their biggest boost since December 1993.
In the next three months, the highest percentage of firms since the question was first asked in March 2009 expects that growth will come from cross selling to existing customers and acquiring new domestic customers.
The largest proportion of firms since the survey began in 1989 says that statutory legislation and regulation is likely to limit their ability to raise levels of business over the next 12 months.
Concern over a further worsening in financial markets fell back in this survey, following a noticeable spike last time. However, the vast majority of respondents still think that ‘normal’ financial market conditions will only resume beyond a six month period.