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Sentiment and volumes are deteriorating sharply in the financial services sector, with various indicators at their lowest level since the financial crisis of 2008, according to the latest CBI/PwC Financial Services Survey.
The quarterly survey of 84 firms found that optimism about the overall business situation in the financial services sector plunged sharply, falling at the quickest pace since December 2008. Optimism has now been flat or falling for over three years, the survey by the Confederation of British Industry and accounting firm PwC showed.
Business volumes fell for a second consecutive quarter, and at the fastest pace since September 2012. Conditions varied across financial services sectors, with the greatest drag on growth coming from the investment management sector, where volumes fell at the fastest pace since December 2008.
Meanwhile, the majority of other sectors reported flat or modest growth, with the exception of insurance brokers, who reported robust growth. Looking ahead, expectations for overall business volumes for the next quarter are the weakest since September 2008.
According to CBI/PwC, employment across financial services fell at the quickest pace in four years, driven predominantly by a sharp decline in headcount in the banking sector. Meanwhile, headcount grew or was flat in all other sub-sectors. Overall employment growth is expected to recover over the next quarter.
However, there were some positive signs in the survey, CBI suggested. With cost pressures easing, profits in the sector as a whole saw their strongest growth in a year, driven by the banking and insurance sector. Profitability is expected to pick up further over the three months ahead.
Across the broader economy, underlying conditions are subdued as Brexit uncertainty causes many households and businesses to hold back on spending.
"The alarm bells ringing at the state of optimism in the financial services sector have now reached a deafening level. Not only has it plummeted at the fastest rate since the depths of the financial crisis, it has been falling or flat since the EU referendum. Additionally, business volumes and employment have fallen over the last quarter," Rain Newton-Smith, CBI chief economist, said.
"Brexit is now a national emergency. No Deal has to be clearly ruled out, then MPs must finally compromise and deliver a solution that protects jobs, livelihoods and communities across the UK. It is in absolutely nobody’s interest for the uncertainty to drag on, and continually chip away at our economy and financial services sector."
Andrew Kail, head of financial services at PwC, said that three strong themes that stand out in the survey are Brexit, people and future investment.
"Looking to the year ahead, financial services firms continue to plan higher spending on IT and marketing (with the strongest expectations since June 2015), but expect to cut back in other areas of capital spending. Investment is largely motivated by the desire to provide new services, with concerns about inadequate net returns on investment the predominant brake on spending," Mr Kail said.
"Meanwhile, the share of firms looking to invest to increase efficiency fell to a record low."