Optimism in the UK financial services sector continues to increase according to business lobbying organisation the Confederation of British Industry (CBI), which released the latest CBI/PwC survey on Monday.
UK financial service organisations experienced a further rise in business volumes in the three months to June this year, according to the CBI/PwC survey, which covered 98 firms in the sector. Business volumes are expected to grow solidly and profitability to rebound over the next quarter, with 44% of firms expecting business volumes to rise, while 7% forecast a decrease, giving a balance of +37%.
With the exception of finance houses and some insurance industry sub-sectors, business volumes were shown to have increased in much of the financial services industry. However, with pricing power under pressure and costs rising in several sub-sectors, overall profitability dropped after six quarters of strong growth. Respondents to the survey also indicated that new regulations and inadequate systems capacity to meet demand could possibly put limits on business expectations over the next year.
The survey also indicated that employment was scaled back during the quarter, with 19% of financial services firms stating that employment was higher, while 32% said it was lower, giving a balance of -12%. However, employment is expected to increase by 5% during the next quarter. According to Office for National Statistics (ONS) data, employment in the financial services sector is forecast to stand at around 1,132 by the end of the third quarter 2014, nearly 13,000 higher than the same period last year.
Confidence in the sector over the long-term is reinforced by plans for further investment in marketing and IT over the year ahead, with financial services firms focusing on improvements to sales & distribution and customer relationship management. The survey revealed that the number of financial services firms planning to increase their marketing spend over the next 12 months, compared to the past year, rose by 17%, while there was a 49% increase in those planning to increase capital spending on IT.
Figures from the survey show that 37% of firms feel more optimistic about the overall business situation compared with three months ago, while 9% said they were less optimistic, giving a balance of +28%. According to 48% of firms, their business volumes have increased, while 15% said they were down, giving a balance of +33%.
Despite expectations for rapid growth being recorded at 34%, income from fees, commissions or premiums fell by 10% in the three months to June, however income from net interest, investment or trading increased by 15%, more than the expected increase of 8%. Average spreads were remained unchanged for the third consecutive quarter, while average commissions, fees and premiums dropped by 21%. There was a slight rise in total operating costs at 7%, which was much less than expected 41%, but the average operating cost per transaction was still 15%. Profits had been predicted to rise by 30%, but fell slightly by 5%, However, confidence has grown as 42% of respondents expect profits to return to growth next quarter, while 12% expect profits to decrease, giving a balance of +30%.