Financial services grow for seventh quarter in a row

The level of business was also seen as being normal, after being regarded as below normal since September 2007.

Of the 106 financial companies surveyed, 53 per cent saw volumes rise in the quarter to December, and 24 per cent reported a fall. The resulting balance of +29 per cent is the highest since June 2007 and above expectations. Firms expect volumes to continue to increase next quarter, but at a slower pace.

Both the value of fee, commission and premium income and the value of income from net interest, investment and trading grew in the three months to December, at the fastest pace since June 2006 and December 2005 respectively. Both types of income are expected to grow in the next quarter.

The rise in volumes and income helped to push up profitability for the 10th consecutive survey: 36 per cent of firms reported a rise in profitability and 22 per cent a fall, giving a balance of plus 14 per cent. This compared with plus 16 per cent in September, completed a year of above average growth in profitability. However, optimism in financial services was lower than three months ago, at minus 24 per cent, and employment was also down, at minus 13 per cent.

Mark Hannam, head of financial services in the North at PwC, highlighted the difference between “the pessimism in the building societies and the relative optimism of the banks” as set out in the report, adding: “Even if you look at the previous quarter [the third quarter] there’s been quite a dramatic shift downwards in terms of their [the building societies’] feeling about themselves.”

“I think the societies have continued to experience difficult trading conditions so the low rate environment and the absence of any base rate changes has continued to be a real difficulty into maintaining any increasing margins.”

But he said banks and building societies are “reasonably well placed” to deal with the year ahead, adding: “I think if you look at the major players in Yorkshire, Yorkshire Building Society has just taken on Norwich and Peterborough, and did the Chelsea Building Society deal last year and I think that is an indication of strength and I expect they look forward to positive times ahead. And then you have the other large societies and I think they have strong franchises, whether you’re thinking about Skipton or Leeds.”

Mr Hannam said that although people have been working through a challenging environment, management teams “have recalibrated, have adjusted how they conduct the business, how they think about the business”. He said: “I think they have got the battle scars but can respond and cope with it.”