Financial services activity sees strong growth, report suggests

ACTIVITY grew strongly in the UK financial services sector for the second quarter in a row in the three months to December, according to a survey released today.

However, the latest CBI/PwC Financial Services Survey said profitability did not increase as fast as expected, growing at the slowest pace for 18 months, and numbers employed in the sector fell at the fastest pace for 17 years.

Asked how their business volumes fared in the three months to December, 50% said that volumes increased and 23% said they fell.

The resulting balance of +27% is in line with firms’ expectation (+24%), and just below last quarter’s balance of +28%, which was the fastest since June 2007.

A slower rate of growth in volumes is expected in the next three months (+15%).

Business volumes grew for all sub-sectors of financial services in the past quarter, apart from banking where volumes were flat, the report says.

Life insurers saw a year of growth in 2010 for volumes of business and profitability. For investment managers, all respondents saw activity grow in the past three months.

Across each of the customer groups in the overall survey experience was mixed.

For business with private individuals, volumes were higher than three months ago.

Business with industrial and commercial companies was flat and it fell slightly with financial institutions and overseas customers.

In the coming quarter, growth in business activity is expected with all the customer groups except financial institutions, the report suggests.

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The value of fee, commission and premium income held steady in the past three months, disappointing expectations of a rise.

However, the value of income from net interest, investment and trading fell in the past quarter and a further fall is expected in the coming three months.

John Cridland, CBI director-general, said: “Activity in the financial services sector grew strongly over the second half of 2010. But firms see growth slowing over the coming three months, and expect another fairly moderate increase in profitability.

“Numbers employed have fallen significantly and investment plans have weakened since September. This probably reflects renewed cost control given little growth in incomes and slower growth in profitability.”

He added: “Business conditions vary across financial services sub-sectors, however. Whereas the banks expect business volumes to remain subdued next quarter, securities traders and investment managers have fared much better and are continuing to take on staff.

“Growth in business with private individuals in the last quarter may well reflect households continuing to strengthen their finances. But looking ahead to the next quarter, commercial business is expected to increase significantly.”