CBI sees growing financial sector gloom over Brexit

Optimism in the financial services sector has fallen in the first quarter of 2018 as negativity surrounding the sector has now surpassed that of the 2008 global financial crisis.

Nine consecutive quarters have yielded flat or falling optimism, according research by the CBI and Pricewaterhousecoopers of 81 UK firms, which identified a deterioration in sentiment towards banking and investment managers as driving the issue.

Almost a quarter, 24%, of surveyed finance firms reported that they were pessimistic regarding the overall business situation compared with three months ago, while just 7% reported comparative optimism. Growth is expected to remain subdued over the following quarters, largely in line with results seen in 2017.

The uncertainty of the future that the sector will face as the UK exits the EU seems to be causing confidence to stutter.

Andrew Kail, head of financial services at PwC, said: “Brexit, with its transition timeframe now agreed, is just one of many factors financial services organisations are having to deal with. While 31 December 2020 is a welcome extension on 31 March 2019, it may not be sufficient to prevent companies planning for a hard Brexit until the shape of the landscape after 2020 becomes clearer.”

Strengthening profitability is set to lead to the creation of new jobs in the sector over the next quarter as 44% companies saw an increase in the area and 33% of businesses experienced volume growth throughout the period, up 7% from the previous quarter.

Expectations for employment had been flat for the quarter but 30% of financial firms increased headcount compared to just 22% that made reductions.

While results vary across the industry, insurance and banking saw strong growth while building societies remained unchanged and investment management and finance houses saw declines in volume growth.

Rain Newton-Smith, CBI chief economist, said: “Looking to the longer-term, it’s clear that the sector needs to work hard to ensure the workforce has the digital skills necessary for maintaining the UK’s competitive edge, as well as to attract a younger, more diverse group of people and the very best international talent.”

Businesses are expected to continue to increase spending on IT and marketing while decreasing costs such as land and property.