OPTIMISM in the financial services sector surged in the three months to September, according to an influential survey.
The CBI/PwC Financial Services Survey delivered the most upbeat data for 17 years.
Employment also grew, although at varying rates across different sub-sectors. However, business volumes fell unexpectedly, mainly in the banking sector.
Profitability rose for the fourth consecutive quarter, as companies managed to offset the fall in business volumes by widening spreads. This reflected gains in a majority of sub-sectors, including banking.
Business volumes are expected to recover strongly in the next quarter and, with costs likely to fall, profitability is set to increase further.
Financial services firms also expect to add more jobs in the next three months, although at a slower rate than in this quarter. Stronger demand, changing business strategies and regulatory compliance were identified as major drivers of recruitment.
CBI director of economics Stephen Gifford said: “With optimism rising and jobs and profitability growing, this is an encouraging quarter for the financial services sector, despite a fall in business volumes in banking.
“Firms are expecting positive momentum to carry into the next three months, alongside a strong recovery in business volumes, which will boost profits further.
“Financial services companies are less worried than they were about a potential lack of demand, but dealing with regulation is increasingly weighing on plans for business expansion.”
PwC’s northern financial services leader, Iwan Griffiths, said: “Banks’ optimism is increasingly buoyant despite seeing a slight seasonal blip in commercial and industrial volumes. Activity and profitability are expected to grow as the economy recovers, and investment in new products and infrastructure is increasing.
“A reduction in industrial and commercial business, down to the quiet summer, was expected and is not an indication of a long-term trend. Regulation continues to be the sector’s greatest source of uncertainty, particularly as UK macroeconomic concerns start to fall away.
“In Yorkshire, growth in employment across most sub-sectors of the financial services industry clearly demonstrates our ability to attract high quality players, and that we are open for business.”