Member Article

Business growth for financial services sector

Business volumes in the financial services have grown for the eighth consecutive quarter, prompting increased optimism in the sector.

According to the latest CBI/PwC Financial Services Survey, 44% of businesses questioned have witnessed an increase in business in the quarter to March, while 21% reported a fall, resulting in a balance of 23%. This is double the long running average of 12% and is driven by business with private individuals.

34% of businesses now anticipate that growth will continue into the coming quarter, with work again coming from business with private individuals.

These figures are reflected in the first rise in optimism in a year, to 32% and an unexpected increase in employment in the sector to 19%.

Ian McCafferty, CBI Chief Economic Adviser, said: “Financial services sales volumes and income continued to rise this quarter, putting the sector’s recovery on a firmer footing.

“Optimism levels and business investment intentions have also improved, in contrast to last quarter as some of the worst risks around the euro area crisis have eased.

“The unexpected rise in employment is a further encouraging sign for the sector. But with the current level of business regarded as below normal, conditions remain relatively challenging for financial firms.”

The rise in incomes was driven by fee, commission, or premiums, with income from the value of net interest, investment or trading remaining flat at 3%. Meanwhile, average spreads widened further this quarter to 11%, building on 43% growth in the previous quarter. The growth in income more than offset the impact of the sharp increase in total costs, allowing profitability to rise more rapidly than in the previous three quarters.

Mark Menton, director at PwC in the North East said: “More positive economic data and a slightly more stable environment in the eurozone mean that banks are much more confident about their sector.

“This confidence is translating into recruitment with many banks reporting that they plan to increase headcount over the coming months.

“Banks are also planning to invest in their businesses, particularly in their digital offerings, and customers should reap the rewards of this.”

As has been the case over the last year, companies continue to cite uncertainty about demand and inadequate net return as the factors most likely to limit capital expenditure over the next twelve months. The number of firms highlighting the shortage of labour as a significant constraint increased this quarter.

Level of demand and competition continued to be the two most significant factors likely to constrain business expansion in the coming twelve months.

This was posted in Bdaily's Members' News section by Tom Keighley .