Financial services returns to growth

According to the latest CBI/PwC Financial Services Survey, activity in the sector rebounded strongly in the three months to March, with a robust rise in business volumes and an increase in profits.

Profit growth was driven mainly by a further widening in spreads and an increase in income from fees, commissions and premiums. But the pace of growth was slower than expected, in part because of a surprise rise in costs, particularly staff costs, following an unexpected rise in employment.

Financial services companies said they were more optimistic about their overall business situation and business volumes and profits are both expected to grow again in the next quarter. However, regulation and compliance costs are likely to remain a drag on business.

Matthew Fell, CBI Director for Competitive Markets, says this has been a strong quarter for the financial services sector, with robust growth in business volumes, an increase in profitability and upbeat investment intentions:

“Concerns over the lack of availability of professional staff have eased since January and overall employment rose unexpectedly this quarter. But recent problems in Cyprus risk reigniting concerns about Eurozone stability. At the same time, regulation and compliance are still likely to be significant drags on business throughout this year.”

Steve Davies, PwC Partner, Retail and Commercial Banking adds that the banks’ return to confidence continues, although the improvement is less marked than in the previous quarter: “Business is expected to improve across retail, commercial and financial segments and headcount has begun to grow again. This implies a general improvement in confidence which would benefit the banks, the broader financial services industry and the economy as a whole.

“On a more cautious note, the possibility of inadequate returns is prompting a significant number of banks to hesitate over their investment plans.  The banks may be increasingly confident that their core businesses have been put onto a stable and profitable footing, but the sector remains dependent on its own customers’ financial confidence.”