Financial services growth slower than expected

While the industry reported its fourth consecutive quarter of improving profitability, the latest CBI and PwC financial services survey found that firms expected this to level off in the coming three months.

Asked how their business volumes fared in the three months to June, 38 per cent said that volumes rose and 29 per cent said they fell. The resulting balance of plus 9 per cent was the most positive since 2007, but was far weaker than expected.

Banks were the only sector to see business volumes fall in the quarter, while life insurers, finance houses and securities traders saw healthy increases. The volumes for building societies and general insurers were largely flat.

In the next three months, a balance of 63 per cent of firms expect a rise in business volumes - the most positive forecast since December 1993.

The survey was conducted at a time when financial markets were under intense strain due to Europe's sovereign debt crisis. The impact of regulation and legislation on future business was also on the minds of many firms, with a large proportion expecting to spend more on compliance.

John Cridland, the CBI's deputy director-general, said many companies were worried about whether red tape will hamper their growth prospects.

He added: "Firms have also become more worried about increased competition within the sector, particularly from new entrants and from overseas."

The number of people employed in the sector continued to fall, the CBI said, but the decline was slightly slower than expected. Firms now expect staff numbers to increase in the current quarter, which would represent the first improvement since December 2007.