Financial services firms report continued growth

The majority of financial services firms reported rising business volumes in the three months to December, according to the latest CBI/PwC Financial Services Survey.

Related topics:  Finance News
Rozi Jones
19th January 2015
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64% of financial services firms said that business volumes were up, while 65% of firms expect business volumes to increase. Additionally, 49% of financial services firms said they felt more optimistic about the overall business situation compared with three months ago.

Overall profitability also stayed high, with 62% of firms reporting that profits had increased compared to 10% who said they fell.

Overall business volumes rose at the fastest pace since the mid-1990s, with demand from both UK households and corporates underpinning solid growth across most industry sectors.

Building societies were the exception, with business volumes falling unexpectedly. Firms expect similarly healthy growth to continue next quarter, with building societies expecting volumes to recover.

Financial services firms reported strong income growth, particularly from fees, commissions and premiums, but also a decent performance from net interest, investment and trading income. Alongside falling costs, that meant profitability improved at a lively pace for the second successive quarter. Profit growth was seen across all sectors, with the exception of life insurance.

Rain Newton-Smith, CBI Director of Economics, said:

“The upswing in growth among financial services firms continues on a solid footing, with overall optimism, business volumes and profits up.

“Building societies have struggled this quarter, likely as a result of the impact of the Mortgage Market Review, constrained buyer affordability in London and the South East, and stronger competition in the mortgage lending market. But a strengthening of household finances, continued low interest rates and the recent changes to stamp duty suggest that conditions in the sector should pick up ahead.

“The employment picture was mixed last quarter but firms are boosting their spending on training. It’s encouraging to see the majority of companies planning to increase their investment spend, especially on IT and marketing, to increase efficiency and to reach new customers as competition and technology change the nature of the sector.”

Kevin Burrowes, UK financial services leader at PwC, said:

“Financial services firms continue to be optimistic, but we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers.

“The increased investment in land and buildings is a sign of banks looking at expanding into cities outside London such as Manchester and Edinburgh due to high cost and capacity issues in the capital.

“Employment has fallen, but training expenditure has increased as banks face desired skill shortages such as compliance experts and we expect this trend to continue.”

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