The survey reveals that business volumes grew at their fastest rate since 2007 and the momentum is expected to continue into the coming quarter. Rising volumes helped push up overall profitability, which bounced back after the previous quarter’s contraction, and business volumes are predicted to grow strongly again in the next quarter.
Profits rose robustly despite a spike in costs and are expected to grow at a similar rate in the next quarter. But while costs rose at a record pace, this was off-set by a drop in the value of non-performing loans, which fell at the fastest rate since 1996.
Looking ahead, firms say statutory legislation/regulation and competition are likely to be the biggest constraints on business over the coming year, while concerns about level of demand have dropped off sharply.
Rain Newton-Smith, CBI Director for Economics, said:
"The UK’s financial services sector is enjoying its strongest run of growth since 2007, with activity rising across all customer categories and profitability bouncing back. The spike in costs was off-set by a steep fall in the value of non-performing loans, suggesting that much of the fall-out from the financial crisis is now working its way out of the system.
"With competition one of the top concerns for the coming year, the sector could be moving to a new phase in the recovery where firms are feeling more assured about the level of demand, and are now shifting their gaze to competing for new customers and business. This is reflected in their expectation that sales to new customers will be the main driver of growth in the coming quarter. Worries about the impact of legislation at home and from Europe, such as new capital requirements and the prospect of a financial transaction tax, are also increasingly weighing on the sector.
"However, with strong broad-based growth, financial services firms are relatively upbeat about future prospects, despite some big geo-political risks that remain on the horizon."
Kevin Burrowes, UK financial services leader at PwC, said:
“The 100th CBI/PwC Financial Services Survey paints a picture of improving confidence and profitability. There is an increasing focus on new services and technology-enabled growth. Time will tell if established banks are underestimating their need for digital capabilities as we see a continued influx of new entrants without the chains of legacy systems, meaning that tougher competition is an increasing concern. There are hints of a new ‘war for talent’ and tighter monetary policy in 2015 could also pose a challenge.”
