Member Article

UK professional services industry growing at fastest rate since 2007

The UK’s financial services firms saw strong growth in business volumes in the three months to September, with profits rebounding and hiring on the up, according to the 100th CBI/PwC survey of the sector.

The survey reveals that business volumes grew at their fastest rate since 2007 and the momentum is expected to continue into the coming quarter.

60% of firms said that business volumes were up, while 11% said they were down, giving a balance of +49%, the strongest reading since 2007 (+51%)

21% of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 7% said they were less optimistic, giving a balance of +14%, compared with +28% in June.

Overall profitability bounced back from the fall last quarter, with 60% reporting a rise, and 8% a fall, giving a balance of +52%, the fastest growth since March 2011 (62%). A similar rate of growth is expected next quarter (+53%).

Income from fees, commissions or premiums fell unexpectedly in the three months to September (-27%) at the fastest rate since March 2009 (-53%), disappointing expectations of growth (+12%) and fee/commission income is expected to fall again in the coming quarter (-22%)

Total operating costs spiked sharply (+53%), raising at the fastest pace since the survey began (in December 1989), which also pushed up average operating costs per transaction sharply (+43% - again, the fastest rise on record).

24% of financial services firms said they increased employment, while 7% said that it had decreased, giving a balance of +17%, an improvement on last quarter’s unexpected fall (-12%)

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.

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.”

This was posted in Bdaily's Members' News section by Ellen Forster .