CBI PwC Financial Services Survey

Q1 2017

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Executive summary

Sentiment amongst financial services firms has plateaued in the last quarter to March, marking an end to a steady decline in optimism over the past year. Flat business costs coupled with rising business volumes have driven increasing profits across industry, although this is expected to slow over the coming quarter. This sentiment aligns well with our latest CEO survey citing optimism amongst CEOs when considering growth over the next 3 years.

We are beginning to see a real flattening of the landscape in financial services, inspiring diversification within firms to develop and invest in new products and services. Bolstered by increasing capital investment in IT and a surge in plans to recruit and train staff, firms are planning to increase the efficiency of their processes and better cross sell services to their existing customers.

As we move into Q2 of 2017 financial services are looking cautiously upbeat and keeping a close eye on the challenges ahead, including concerns over the availability of talent and the impact of regulation on business expansion.


Banking

Banking
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What are we seeing in the market?

Sentiment has stabilised in the banking sector for the first time in over a year, curbing a continued decline in optimism. Despite this, banks reported an increase in the overall profitability of their businesses, the most significant improvement in over a year driven by a period of continued market volatility.

With a marked increase in access to talented professional staff being highlighted as a limiter to business growth, banks are actively recruiting and investing more in their staff than any point over the last year. Coupled with a sharp increase in IT spend and consistent investment in statutory legislation and regulation begins to suggest that banks could be preparing to mobilise their large scale change plans around MiFID II, Brexit and ring fencing.

A drive to develop and invest in new products and services is helping banks diversify their portfolio of offerings to customers and provide new opportunities to cross sell to new and existing customers.

 

Looking forward

Investment in digitally led new products and cross sales to customers will continue to be the focus for investment over the next 12 months.


Insurance

What are we seeing in the market?

Life insurers, general insurers and brokers in the UK see opportunities for future growth but optimism is balanced, fuelled by flat business volumes, competition and ongoing pressure on margins.

Investment in technology remains a priority for insurers, particularly in areas helping improve efficiencies and the development of new services. Availability of talent has also emerged as a key barrier to growth and further confirmed by the continued decline in staff costs across the sectors. Potentially suggesting a move towards staff automation and increasing adoption of technology to support ongoing cost reduction programmes.

Competition continues to play out as the single largest challenge facing the insurance sector over the coming 12 months, with particular focus in general insurance on insurtech start ups. To help offset this, insurers are increasingly looking at opportunities to form strategic partnerships and focus on acquiring domestic customers.

 

Looking forward

Insurers should look at these figures with optimism. With a mixture of confidence about the opportunities for growth and a very strong focus on cost reduction, the current balance of optimism in the current environment is a testament to the industry’s resilience.

General Insurance
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Investment Management

Investment Management
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What are we seeing in the market?

Sentiment amongst investment managers is beginning to pick up following a period of continued pessimism in 2016. Business volumes grew in the three months to March allowing profitability to pick up, with further profit growth expected to accelerate in the coming quarter, despite business volumes expecting to ease off.

Total operating costs rose sharply in the first quarter and are expected to continue at the same pace in the coming three months. Despite this, investment managers have plans to invest in technology, albeit at a slightly dampened pace. This combined with the threat of regulation and legislation as the main barrier to business expansion over the coming year suggests a slight freeze on large scale investments by the industry to allow more time to assess and plan the impact of upcoming regulation including MiFID II, PRIIPS and the FCA Market Study.

 

Looking forward

Investment managers continue to see M&A playing a part in their growth strategies in the coming year, alongside organic growth strategies aimed at retaining existing customers. With particular focus on scale and the ability to implement innovation quickly spurring competition and consolidation in the sector.

Contact us

Andrew Kail
UK Financial Services Leader
Tel: +44 (0)20 7212 5193
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