Profits up, employment down, as financial services firms remain upbeat

PROFITS were up, but employment levels were down, as financial services firms endured a mixed opening quarter of 2015.

Analysis by the CBI and PwC in their latest Financial Services Survey showed business volumes have continued to grow, albeit at a slower pace than in the last year.

Rain Newton-Smith, CBI’s director of economics, said it had been “a mixed picture for the financial services sector” in the three months to March.

“Firms remained upbeat as profits held up, despite weak growth in business volumes in some sectors, especially banking,” she said.

“The overall headcount in financial services fell for a second consecutive quarter, driven by banks cutting staff as they make their business operations leaner, refocusing activities as a result of new capital rules and regulatory requirements.”

Employment in financial services fell for a second quarter, weighed down by banks downscaling their activities, at a time when employment in other sectors either rose or was broadly stable.

The survey found that the sector remains upbeat – with the caveat that the research was carried out before the increased bank levy was announced in the Budget – with 59% saying they were more optimistic than three months ago, compared with only 9% which were less optimistic.

Gary Shaw, financial services leader at PwC in Yorkshire, said: “UK banks are reporting growing confidence, steep revenue growth and increasing profitability, despite an unexpected stagnation in business volumes.

“Banks’ spending priorities for the next year are focused on improving IT infrastructure and cyber security.  Growth is seen to come from cross-selling to existing customers and attracting new domestic customers.  Banks are also building new digital platforms to remain competitive and respond to changing customer needs.”

Financial services firms expect to reduce investment in land & buildings, vehicles, plant and machinery, and marketing over the next twelve months. However, firms in most sectors continue to plan strong increases in IT spending.

The main drivers of capital expenditure authorisations over the year ahead are the need to increase efficiency and speed, and to provide new services. Companies reported that they would be focusing their growth strategies on retaining and cross-selling to existing customers, more than acquiring new ones.