UK - Financial services firms are optimistic about the future despite a second static quarter for growth, a new report by the CBI and PricewaterhouseCoopers claims.
Growth is expected to resume over the next three months, and companies are planning higher investment expenditure in the next six months.
This optimism comes despite growth expectations in the previous survey being dashed for most sectors, although those focussed on personal customers did report expansion.
The quarterly Financial Services survey, carried out amongst 81 companies last month, found that 33% of firms said their business volume had increased during the past three months.
However, one in three companies claimed business decreased.
Looking forward, a balance of 6% of companies expect business to increase over the coming three months, with a balance of 14% expecting profits to rise. Output prices and employment levels are also expected to increase, although a modest rise in costs is also foreseen.
Doug Godden (pictured), head of economic analysis at the CBI, explained: Subdued activity has combined with weakening pricing power to depress profitability, despite financial services firms continuing to keep a tight grip on costs. But looking ahead, firms in this sector seem reasonably confident.
“The expectations of growth and increasing profits, although modest by past standards, are nevertheless encouraging following a period of stagnation. And sagging demand over the last three months did not stop them increasing their headcounts and training expenditure, with more of the same planned for the next quarter.
The survey shows that competition remains the most likely constraint to business over the coming year, followed closely by the level of demand. The most important constraint to investment is seen as inadequate net returns, with uncertainty about demand easing as an issue since the last survey.
And significant variation still exists between different sectors of the financial services industry.
In June, finance houses, securities traders and building societies saw big falls in business levels, whilst general insurance and fund management saw significant growth.
Reflecting the fall in business, profits were hit hard at finance houses and securities traders, yet building societies showed strong profits - reflecting a significant increase in the value of their fee income. The banking sector also saw a substantial fall in profits despite unchanged business levels.
Despite the overall absence of growth in the financial services, there was aggressive expansion in e-business transactions - with a margin of plus 60% of companies saying the value of business carried out over the internet increased in the last three months.
John Hitchins, UK banking leader at PricewaterhouseCoopers, said the industry would bounce back from a “disappointingly flat” last quarter.
He added: “In the longer term, the industry continues to be cautiously optimistic, with an expectation of modest growth in profits and a focus on investment in IT, marketing and property refurbishment.
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