Optimism in the financial services sector fell sharply in the third quarter, having declined in all but one quarter since the start of 2016, the latest CBI/PwC Financial Services Survey has found.
Optimism dropped sharply (-30%), the tenth quarter of declining sentiment in the last 11 quarters. This marks the longest period of flat or falling sentiment since the global financial crisis of 2008
Rain Newton-Smith, CBI chief economist, said: “While it’s good to see that demand for financial services is holding up, with business volumes edging higher last quarter, it’s simply impossible to ignore the dangerous signs of strain on the sector arising from the combined challenges of a subdued economy, Brexit, regulation and rapid advances in technology.
“For the sector to continue to be one of the UK’s most attractive economic assets, it is fundamental that a Withdrawal Agreement with the EU is agreed. This will provide temporary but essential relief for financial services firms of all sizes. Then attention can turn to the vital task of finalising our future economic relationship with the EU, in which services need to play a pivotal part.
“In the long run, it’s clear the sector needs to think more creatively about recruiting and retaining its skilled staff. Investing in employees with the right skills – especially technological skills – and ensuring the sector offers a more diverse and attractive career path are key.”
The deterioration of sentiment in banking and investment management was particularly widespread – only finance houses reported an improvement in optimism.
Overall business volumes increased slightly in the three months to September, although the level of business dipped slightly below normal.
Some 6% of firms said they were more optimistic about the overall business situation compared with three months ago, whilst 36% were less optimistic, giving a balance of -30%, compared with -4% in the quarter to June.
Barring December 2016 (-35%), this was the steepest drop since the financial crisis (-34% in March 2009)
Some 23% of firms said that business volumes were up, while 11% said they were down, giving a balance of +12% (up from -4% in the quarter to June)
Looking ahead to the quarter to December, business volumes are expected to be flat: 15% of firms expect volumes to rise next quarter and 14% expect them to fall, giving a balance of +1%, the weakest since December 2009 (-13%).
Employment growth across financial services stalled in the quarter to September, with cuts to headcount in banking outweighing increases in most other sectors.
Also asked about recruitment and skills, two fifths of firms said they had found it more difficult to recruit and retain workers over the past year.
Andrew Kail, head of financial services at PwC, said: “The financial services sector is arguably the most internationally competitive industry in the UK. It’s essential that London and the regional centres across the country collectively remain among the pre-eminent international hubs for financial services and global business.
“There are understandable concerns around the shockwaves created by Brexit alongside dealing with the impacts of regulation and technology. Addressing how these issues manifest themselves must be at the heart of firms’ contingency plans over the next six months.
“As the Brexit negotiations continue companies across the sector – who are providing vital services to customers, corporates and governments – have the chance to galvanise themselves and their clients against any potential fallout. This must be underpinned with prudent planning and skilful execution of their plans.”