Financial sector growth expected to continue

Profitability improved in the financial services sector for the fifth successive quarter, and is expected to continue growing over the next three months, according to the latest financial services survey from lobbying group the CBI.

Asked how business volumes fared in the three months to June, 37 per cent said volumes rose and 9 per cent said they fell. The resulting balance of 28 per cent is the most positive since June 2007, which was 51 per cent.

But the CBI added this fell short of expectations - with 63 per cent balance forecast. A similar pace of growth is expected next quarter, by a balance of 24 per cent of firms.

Ian McCafferty, CBI chief economic adviser, said: "Activity picked up in the financial services sector in the last three months at a pace not seen since before the credit crunch. Although this growth was slower than hoped, it did help firms' profitability to rise further.

"There is ongoing concern that prospective regulation may hold back business expansion in the coming year, but financial services firms have become more worried that weak levels of demand will dampen growth prospects."

Business volumes rose across all sub-sectors of financial services in the past three months, apart from general insurance, which saw a modest fall in activity, the CBI said.

Banks' volumes increased after two quarters of decline and building societies saw the fastest rise in volumes since March 2008, helping to achieve a near unanimous rise in profitability.

Total operating costs continued to fall, but at a much slower pace than in the previous quarter, the CBI added.

A rise in profitability was also recorded for the fifth quarter in a row. The balance of 23 per cent is the highest since June 2006, which was 28 per cent.

Numbers employed rose in the sector for the first time since December 2007, and the balance of 12 per cent was broadly in line with expectations of 14 per cent.

Levels of optimism were also up in the sector, with the proportion of firms believing there is a high likelihood of further deterioration in financial markets falling back to 10 per cent. Concern receded particularly in the insurance-related sectors, the CBI added.

The CBI Financial Services survey is completed in conjunction with PricewaterhouseCoopers.