LONDON (MNI) – Businesses volumes in the UK’s financial services
sector grew at their fastest rate since June 2007, returning to a
‘normal’ level for the first time in 4 1/2 years, according to the
latest Confederation of British Industry/PwC Financial Services Survey.

The positive headlines results were tempered by a fall in
sentiment and employment levels and firms also said that they intended
to invest less over the coming year. The continuing financial market
turmoil appears to be bolstering volumes and damaging confidence.

The robust headline business volume and activity results follow the
stronger-than-expected Markit/CIPS services PMI survey for December,
which was released earlier this week and suggested that services growth
held up pretty well during the past quarter.

Of the 106 financial companies surveyed, 53% saw volumes rise in
the quarter to December, and 24% reported a fall. The resulting balance
of 29% is the highest since June 2007 (51%) and above expectations
(5%).

Firms expect volumes to continue to increase next quarter (19%),
but at a slower pace.

Both the value of fee, commission and premium income balance (28%)
and the value of income from net interest, investment and trading (24%)
grew in the three months to December, at the fastest pace since June
2006 (28%) and December 2005 (26%) respectively.

The rise in volumes and income helped push up profitability for the
tenth consecutive survey with 36% of firms reporting a rise in
profitability and 22% a fall, giving a balance of 14%. This was down
from 16% in September, and completed a year of above average growth in
profitability (11%).

However, optimism fell from the last survey three months ago
(-24%), and employment was also down (-13%), with firms predicting a
faster decline next quarter (-18%).

Companies say they will invest less on land and buildings (-29%)
and vehicles, plant & machinery (-21%) over the next year. Firms also
say they plan to invest less on marketing over the same period (-10%),
representing the first fall since September 2009 (-29%).

Investment in information technology is expected to see a minimal
increase (4%), which is well below its long-run average (28%). Shortage
of finance, uncertainty about demand and business prospects, and
inadequate return on investment were seen as the factors most likely to
limit investment.

Ian McCafferty, CBI Chief Economic Adviser, said: “This has been a
strong quarter for the financial services sector, with increases in
sales volumes and profits showing that the sector’s recovery is on
track.

“But firms are less optimistic, employment is down and investment
intentions for next year are weaker, as concerns about the global
recovery and ongoing troubles in the Eurozone create uncertainty.

“Nevertheless companies are expecting business volumes and profits
to continue to grow, albeit more slowly, in the next three months.”

Kevin Burrowes, UK Financial Services Leader at PwC, said that he
expected banks to show increasing concern over non-performing loans in
the months ahead.

Spending on new regulatory requirements would bring a significant
increase in costs for banks, he said, which the sector is intent on
passing on to customers. Whether they could achieve this against a
background of intensifying competition remained open to question, he
said.

“Banks have also shown a marked acceptance that there will be
increased competition in the UK. Regulatory changes remain high up the
agenda and will absorb significant management time, and spend on this
will be very high throughout the year,” Burrowes said.

The survey was conducted between 21 November and 7 December,
covering 106 respondents.

— London newsroom: 207 862 4792; e-mail: ukeditorial@marketnews.com

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