Financial services activity grows for second quarter

But profitability among banks, building societies and finance houses did not increase as fast as expected, with the rate of growth at the slowest pace for 18 months.

Numbers employed in the sector also fell at the fastest pace for 17 years, according to the latest CBI/PwC financial services report.

John Cridland, the CBI's incoming director-general, said: "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.

"Numbers employed have fallen significantly and investment plans have weakened since September. This probably reflects renewed cost control given little growth in incomes and slower growth in profitability."

Mr Cridland said business conditions varied across sub-sectors though. "Whereas the banks expect business volumes to remain subdued next quarter, securities traders and investment managers have fared much better and are continuing to take on staff.

"Growth in business with private individuals in the last quarter may well reflect households continuing to strengthen their finances. But looking ahead to the next quarter, commercial business is expected to increase significantly."

Andrew Gray, UK banking spokesman at PwC, said: "Despite subdued business levels, the banks are more confident than they have been at any point since 2005 in anticipation of stronger commercial demand."

An estimated 240,000 people work in financial and professional services across the Leeds city region.