Tough times predicted for banks with 8,000 jobs to go in sector

The report showed that the sector expects growth to slow down in the next three months, with no pick up in profits.

This will be the first time in two years that the sector will see no improvement in profitability.

The CBI’s chief economic adviser, Ian McCafferty, said sentiment has fallen for the first time since March 2009, as firms expect more challenging conditions.

“We expect to see a fall in headcount over the next three months,” he said. “Only building societies do not expect to see a fall.

“Our survey suggests that having seen a rise in employment of 1,000 in the third quarter we expect to see a fall of 8,000 in the fourth quarter.”

The report said the pace of growth in the UK financial services sector continued to slow in the three months to September.

Of the 84 financial services firms surveyed, 33 per cent saw business volumes rise in the quarter to September, and 24 per cent reported a fall.

The resulting rounded balance of +10 per cent is the lowest since June 2010 and represents a slower rate of growth than the June quarter.

Firms expect the pace of growth to slacken in the coming quarter, with business volumes expected to ease and profitability to flatten out.

“After a torrid couple of months on global financial markets, the mood has clearly darkened,” said Mr McCafferty.

“Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.

“With business volumes predicted to slow further and little growth in income expected, firms are planning to reduce their headcount in the next quarter.”

The survey showed that firms are planning to invest in IT over the coming year, but will scale back spending on land, buildings, vehicles, plant and machinery.

The most commonly cited factors limiting spending are uncertainty about demand and business prospects, and inadequate return on investment.

The CBI said bankers’ business sentiment was lower for the second consecutive quarter.

Banks said they saw little change in the volume of business during the past three months, which they regarded as being at well below normal levels, but they expect to see it increase in the next quarter.

Building societies were less optimistic about their overall business situation compared to the last quarter.

The CBI said building societies’ volumes of business were broadly flat in the third quarter, despite predictions of strong growth. The survey showed that the level of business remains below normal although strong growth is predicted for the coming quarter.

Building societies plan to increase IT expenditure in the coming year, as well as raise their land and buildings budget.

Andrew Gray, UK banking leader at PwC, said: “Concerns over new regulation continue to overshadow banks’ confidence. This is despite a solid last quarter, which has seen bank margins and overall profitability hold up.

“The Independent Commission on Banking’s final proposals are forcing banks to reassess their business models, funding requirements and operations.

“Many banks continue to control costs aggressively and as a result expect further headcount reductions.”

He added that building societies’ cost-cutting initiatives were starting to pay off as profitability had been boosted during the quarter.

“This positive backdrop is leading building societies to be the only sub-sector of financial services to start hiring again. The sector is also planning to invest heavily in IT systems and applications to retain its existing customers.”

He said the focus for societies would be on keeping customers as banks invested in sales and marketing in an attempt to poach them.

Life insurance business volumes increased for the seventh consecutive quarter, but the level of business was below normal. The survey showed that optimism among general insurers has fallen in the last quarter to the greatest extent since June 2008.

Mark Stephen, UK insurance leader at PwC, said: “An increase in business volumes and profitability has done little to reassure life insurers as predictions for new business remain low.

“Many expect to see the value of new business fall over the next three months as the economic backdrop puts pressure on the attractiveness of life insurance products.”

Business failures expected to fall

Business failures are expected to fall by over 20 per cent from a peak of 26,196 in 2009 to 20,536 in 2015, according to the latest Industry Watch report by accountants BDO LLP.

But failures will remain above pre-recession levels of 16,431. Graham Newton, business restructuring partner at BDO in Leeds, said: “There are reasons for Yorkshire businesses to be optimistic. We expect inflation to fall back sharply in 2012 and for consumers’ earnings growth to remain constant, giving households greater spending power.”