Growth in business volumes picked up more strongly than expected in the three months to December, according to the CBI/PWC Financial Services Survey.
The survey of 100 financial services firms reported that the overall level of business remained “above normal”, despite the fact that the level of business with overseas customers fell. The quarterly survey also found that optimism within financial services rose only slightly, following more robust increases in the first half of 2015.
Strong competition is bearing down on incomes, although tight cost control is helping to support growth in profitability. Weaker growth in business volumes, flat income and rising costs are expected to lead to profits growth easing in the run-up to March.
Employment prospects remain mixed, with banks reporting falling employment, compared with solid growth in headcount in the insurance and building society sectors. Overall, expenditure on training rose strongly in the three months to December, according to the study.
Rain Newton-Smith, the CBI’s Director for Economics, said: “Despite strong growth in profitability driven by easing cost pressures and increasing business volumes, the financial services industry is alive to downside risks from developments overseas. The global economic outlook remains uncertain while China rebalances, which is having knock-on effects on emerging markets, amidst continued unrest in the Middle East. While investment intentions remain robust in IT, and marketing spend is set to expand as firms seek new customers, elsewhere companies are curtailing their capital spending due to poor returns.
“There is a great deal of uncertainty within the financial services industry over the impact of Fintech (technology applied to financial services). Firms in most sectors are looking to upgrade their own platforms over the next five years rather than acquire Fintech firms. However, partnerships with Fintech firms are seen as a high priority by companies in some sectors, particularly finance houses, insurance brokers and investment managers.”
Kevin Burrowes, UK financial services leader at PwC, said: “We see the emerging trend of firms making more investment in new products. Another positive is that IT investment is moving from regulatory spend to front line systems to help overcome the rise of new competition.”