6th October 2014
Business is booming across the UK’s financial services industry with the sector enjoying its best growth rate since 2007.
According to a survey from lobby group the Confederation of British Industry (CBI) and consultancy firm PricewaterhouseCoopers (PWC) business volumes accelerated at their fastest pace since 2007 in the three months to September as profits rebounded and hiring increased.
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 and the positive momentum is expected to grow at a similar rate in the final three months of the year.
Looking to the future firms asserted that 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.
Overall the survey found that on balance some 49% of firms witnessed a rise in business activity, the strongest reading since 2007, which registered +51%.
Looking ahead to the next quarter, 63% of firms expect business volumes to increase, while 8% say they will decrease, giving a balance of +55%, representing the best expectation for growth since June 2010.
In addition, profitability bounced back from the fall last quarter, with 60% reporting a rise and just 8% a decline; a balance of +52%, and the fastest growth since March 2011, at 62%. A similar rate of growth is expected next quarter.
Rain Newton-Smith, CBI director for economics, said: “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 geopolitical risks that remain on the horizon.”
In addition firms saw a return to hiring following last quarter’s unexpected fall in headcount but this is expected to stabilise in the next quarter. Taking into account long-run trends, the latest survey results suggest that employment in financial and insurance activities is forecast to stand a little above 1.15m by the end of the year – 28,000 higher than at the end of 2013.
Kevin Burrowes, UK financial services leader at PwC, said: “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.”