CBI/PwC Financial Services Survey

The survey shows a strong positive swing in UK financial services sentiment. This reflects continuing growth in volumes of business, combined with the effects of calmer financial markets and an easing of liquidity concerns among European banks. Banks, insurers, investment managers, brokers and building societies are all feeling more confident than at the end of 2011. Most expect to see business grow over the coming quarter.

 

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We’re seeing a change in financial services. The concerns that existed before Christmas, when we had very big credit crunch issues, very big worries about the euro zone, they seem to have stabilised and been replaced in the financial services industry by growing optimism, I think, about what’s beginning to happen. We’re beginning to see less concern about bad debts, and increasingly, financial institutions beginning to look to invest in new products, new markets, and new distribution mechanisms.

In the banking sector, we are seeing good volume increases, and that’s also translated into increased spreads commissioned and their interest income, and that’s all very positive. We’re seeing a corresponding increase in costs, and the sector still remains very, very worried about regulation. Lastly, we are also beginning to see a trend of concern about where labour will come from to serve the banking sector going forward.

For insurance, we see a very, very positive outlook. And the main thing that’s happening in insurance is we’re seeing a decline in the number of claims, so the claims history is getting much stronger as the government has focussed down on making sure that fraudulent claims aren’t permitted, and the insurance companies have just got a bit better at handling the claims that they are receiving.

Looking forward in financial services, what we’re going to see over the next few months is increasing focus by management on costs. We’re going to see still, a real, real challenge around regulation, but I think the emerging theme is going to be more at the front end of the business. How do they serve their customers? How they become more efficient at serving their customers, and how do they carry on focussing on market share. Because clearly, the threat of greater competition in the banking and insurance marketplace continues to be of concern to bank management.

As a result, there is a growing emphasis on organic growth activities and greater investment in IT is planned. Spending on regulatory compliance also continues to grow, although immediate concerns about regulation have fallen. Firms will need to balance these conflicting investment requirements.

Growing volumes, regulatory needs and the desire for growth mean that the outlook for employment has picked up strongly. Overall headcount has increased, and many firms are planning to add more staff. This is very welcome, but firms should be wary of over-paying. There are already some signs that the availability of professional staff could become a challenge.

The CBI/PwC Financial Services Survey is a quarterly trends report that discusses the health, perceptions and plans of the UK financial services industry.

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