Financial services sector slows down say CBI

Published on Monday, 03 October 2011 14:06
Posted by Scott Buckler

The pace of growth in the UK financial services sector continued to slow in the three months to September, according to the latest CBI/PwC Financial Services Survey published today (Monday)

In the next three months, firms expect growth will be slower still and, for the first time in two years, there will be no improvement in profitability. Meanwhile, sentiment has fallen for the first time since March 2009, as firms anticipate more challenging conditions.

Of the 84 financial services firms surveyed, 33% saw business volumes rise in the quarter to September, and 24% reported a fall. The resulting rounded balance of +10% is the lowest since June 2010 (a balance of +9%) and represents a slower rate of growth than the June quarter (+17%).

Both the value of fee, commission and premium income (+15%) and the value of income from net interest, investment and trading (+6%) grew, though at a slightly slower rate than the previous quarter.

The rise in business volumes and income helped push up profitability: 34% of firms reported a rise in profitability and 18% a fall, giving a balance of +16%. That compared with +13% in June.

However, firms expect the pace of growth to slacken in the coming quarter, with business volumes expected to ease (+5%) and profitability to flatten out (-4%). That has weighed heavily on sentiment about the general business situation: a net 20% of firms are less optimistic than three months ago, the first time that confidence has fallen back since March 2009 (-34%).

Ian McCafferty, Chief Economic Adviser, said:

The recovery in the financial services sector is continuing but the pace of growth has slowed compared with earlier in the year.

“After a torrid couple of months on global financial markets, the mood has clearly darkened. Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.

“With business volumes predicted to slow further and little growth in income expected, firms are planning to reduce their headcount in the next quarter.”


Business was mostly flat across the main customer groups with only industrial & commercial companies registering modest growth (+6%). However, business is expected to pick up with financial institutions and private individuals in the next quarter.

Total operating costs (excluding the cost of funds) were flat, despite expectations of an increase. Average costs fell (-11%) at a rate broadly in line with the long-run trend.

Average spreads showed little change (+3%) and are expected to widen only very slightly in the next quarter (+5%).

A fall in retail bad debts meant that the value of non-performing loans fell slightly (-7%), in line with expectations, and this is expected to decline at a similar rate next quarter.

Numbers employed rose modestly (+5%) but at a far slower rate than had been expected (+20%). Looking ahead to the coming quarter, firms are expected to reduce headcount (-11%).

In the year ahead, firms are planning to invest in IT, but scaling back spending on land and buildings, and vehicles, plant & machinery. The most commonly cited factors limiting spending are uncertainty about demand and business prospects, and inadequate return on investment.

 

Source: CBI

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