The UK’s financial services firms have seen strong growth in business volumes in the three months leading up 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. Rising volumes helped boost overall profitability, which bounced back after the previous quarter’s contraction, and business volumes are predicted to grow strongly again in the next quarter.
Rain Newton-Smith, CBI Director for Economics, has 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. With competition one of the top challenges of 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.”
The survey of 109 firms operating across the sector, which was conducted between 18 August and 4 September 2014, gave the highest results for business volumes since 2007. It revealed that business volumes were up for 60 percent of those firms surveyed, while 11 percent reported a downward trend, giving a balance of 49 percent. Overall, profitability has grown since the previous quarter, with 60 percent of financial services firms reporting increases. This indicates the fastest growth since March 2011 and a similar level of growth is expected during the next quarter. Furthermore, business volumes are anticipated to increase for 63 percent of firms during the next quarter, while 8 percent predicted a decrease, giving a balance of 55 percent. This is reportedly the strongest expectation for growth since June 2010. Optimism regarding the overall business situation was higher for 21 percent of financial services firms.
Kevin Burrowes, UK financial services leader at PwC, has 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.”
Employment increased in 24 percent of financial services firms, while 7 percent said that employment was lower, giving a balance of 17 percent. This was an improvement on a decrease in the previous quarter. Headcounts are expected to stabilise in the next quarter. Also, investments by financial firms in marketing and IT are expected to rise over the next 12 months.
Recent reforms have been the biggest change to the banking sector in a generation; attempt to make banks more resilient to economic issues, easier to fix when challenges arise and to reduce future financial challenges as well. The Banking Reform Act received Royal Assent in December 2013. It has codified structural and cultural changes to the banking system by introducing a ‘ring-fence’ around the deposits of people and small businesses, to separate the high street from the trading floor and protect taxpayers.
The act ensures that the new Prudential Regulation Authority are able to hold banks to account for the way they separate their retail and investment activities; giving it the powers to enforce full separation of individual banks imposing higher standards of conduct on the banking industry through the use of sanctions. With the Bank of England’s interest rate-setting Monetary Policy Committee meeting this week, it adds evidence to the view that the UK economy is enjoying strong growth.
What else might be done to help financial services adapt and develop?