Financial services optimism drops to lowest since 2008: CBI

Optimism in the financial services sector fell for a fourth consecutive quarter in Q4 – the longest period of declining sentiment since the financial crisis and the sharpest fall since December 2008, according to the latest CBI/PwC Financial Services Survey.

Related topics:  Finance News
Rozi Jones
23rd January 2017
decline drop decrease rate
"The first quarter of 2017 and beyond will see many start to fine tune and activate their Brexit contingency plans as the reality of life outside the single market and the EU begins to dawn"

Just 10% of firms said they were more optimistic about their overall business situation compared with three months ago, whilst 45% were less optimistic.

19% of firms said that business volumes were up, while 17% said they were down, giving a balance of +2%, a fall from +34% in September.

A more pessimistic mood was particularly prevalent among banks, with general insurers and finance houses also less optimistic. However, investment managers, life insurers and insurance brokers were more optimistic than they had been three months earlier.

Although overall business volumes were flat in the last quarter of 2016, they are expected to pick up somewhat in the first three months of 2017, with stronger demand in the life insurance and investment management sectors contrasting with a more challenging environment expected by banks and building societies.

Additionally, growth in profits was unchanged in the three months to December, but profitability is expected to improve across financial services in the next quarter, (with the exception of building societies), as cost pressures continue to ease.

Asked about the main challenges for financial services firms in 2017, a range of concerns emerged. Nine in ten banks saw preparing for the impact of Brexit as the number one challenge, but this was not the case in any other sector. This was followed by macroeconomic uncertainty (35%) and regulatory compliance (31%).

Rain Newton-Smith, CBI Chief Economist, said: “Despite feeling uncertain about the near future, it’s encouraging to see the financial services sector charting a steady course, with firms expecting to raise investment and step up the pace of hiring, while continuing to deliver improvements to the bottom line.

“As we head into the New Year, a mixed picture emerges from financial services firms about their hopes and fears. Whilst Brexit is a particular challenge for banks, and broader economic uncertainty is also a concern for many, firms are also looking to future opportunities, with the promise of FinTech offering an exciting chance for the sector to lead the way in adopting new technology and boosting productivity.

“Ruling out membership of the Single Market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU. Businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU. Business stands ready to support the negotiations to get the best possible deal for the UK by ensuring that the economic case is heard loud and clear.”

Andrew Kail, Head of Financial Services at PwC, added: “Uncertainty has contributed to the low levels of optimism reported by many financial services companies, particularly by the banks.

“However, the clarity on the UK position from the Prime Minister's speech is welcome, not least the commitment to a period of phased implementation.

“The first quarter of 2017 and beyond  will see many start to fine tune and activate their Brexit contingency plans as the reality of life outside the single market and the EU begins to dawn.”

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