Around 90% of the 92 UK Financial Service (FS) firms polled in the latest CBI/PwC Financial Services Survey, said Brexit uncertainty was the most serious threat to the UK’s position as a leading global financial centre.
Companies also said the UK’s physical and digital infrastructure lagged behind other advanced economies, while an increasingly complex tax regime and the gold-plating of international standards also threatened the UK’s global competitiveness.
While current business conditions saw moderate improvement, general optimism in the FS sector fell in the three months to December - the third consecutive quarter in 2017 – and rounding off two years of continuous flat or worsening sentiment, the CBI/PwC FS survey found.
The quarterly survey of 92 firms found that optimism about the overall business situation in the financial services sector fell significantly, having declined in seven out of the last eight quarters. However, the subdued mood last quarter was not universal: while banks, building societies and general insurers were decidedly less positive than three months earlier, finance houses, life insurers and investment managers felt more optimistic.
Growth in overall business volumes slowed for a second consecutive quarter, though conditions varied across the financial services sector. Volumes were unchanged in banking while building societies reported that volumes rebounded after falling in the previous quarter. Meanwhile, providers of specialist finance, life and general insurance, and investment management continued to report robust demand growth.
Looking ahead, overall business volumes are expected to pick up a little over the coming three months, with a similarly mixed picture across sectors.
Rain Newton-Smith, CBI Chief Economist, said:
Profits in the sector as a whole continued to improve, although at a pace significantly below expectations, with growth in profits is generally expected to remain similar in the three months ahead.
Employment dipped, having stagnated in the previous quarter, with firms planning to keep headcount stable in the three months to March.
Looking to the year ahead, financial services firms continue to plan for higher spending on marketing and IT, but expect to cut back in other areas of capital spending. Efficiency improvements remained the most important driver of investment, though the share of firms looking to expand capacity also rose. The main brake on investment spending remains inadequate net returns, with citations well above average and rising to the highest since 2015.
Commenting on the survey results, Andrew Kail, Head of Financial Services at PwC, said:
Challenges to UK’s position as a leading global financial centre:
Notes to Editors:
The December 2017 Financial Services Survey was conducted between 14th November and 11th December 2017. 92 firms replied.
A ‘balance’ is the difference in percentage points between the weighted percentage of firms answering that output is “up” and the percentage answering “down” (for example, if 30% of firms say that output is up, 60% that it is unchanged, and 10% that it is down, the balance statistic is +20pp).
Across the UK, the CBI speaks on behalf of 190,000 businesses of all sizes and sectors. The CBI’s corporate members together employ nearly 7 million people, about one third of private sector-employees. With offices in the UK as well as representation in Brussels, Washington, Beijing and Delhi, the CBI communicates the British business voice around the world.