Financial firms expect Q1 growth to slow - CBI

According to a survey of the sector conducted with PriceWaterhouseCoopers, the CBI said although business volumes in the sector rose in the three months to December, profitability did not increase as fast as expected.

The survey also found that numbers employed in the sector fell at the fastest rate for 17 years and that companies' concerns over worsening financial markets had increased.

"Activity in the financial services sector grew strongly over the second half of 2010 but firms see growth slowing over the coming three months, and expect another fairly moderate increase in profitability," said John Cridland, CBI director-general designate.

Financial services represent some 8 per cent of Britain's gross domestic product (GDP) but the sector has been hit by Ireland's economic slump and similar debt crises in other European countries.

In December Lloyds Banking Group warned of a further hit from its troublesome Irish portfolio, while rival part-nationalised lender Royal Bank of Scotland has also been impacted by Ireland's debt problems.

The CBI survey said banks had experienced a sharp fall in profitability and a similar decline for the banks was expected in the coming quarter.

It added that financial services firms had become more concerned about their ability to raise funds over the coming months.

The CBI survey was conducted between November 22 and December 1 and covered banks, building societies, insurers, trading houses and fund managers.