Business volumes in the three months to September were up 31% from 0% in June according to the latest CBI/PwC Financial Services Survey, with volumes growth expected to ease in the quarter ahead.
While slowing slightly on the previous quarter, profitability growth across the sector remains robust and is expected to increase at a quicker pace in the next three months (+44%).
Hwever, despite volumes and profitability growth holding firm, industry sentiment over Q3 fell at the fastest rate since September 2019.
Investment intentions were lacklustre across the sector. Capital expenditure on IT (-1% from +33%) and vehicles, plant & machinery (-2% from -13%) is set to be broadly unchanged in the next 12 months (compared with the previous 12). Meanwhile, investment in land & buildings (-12% from -6%) is expected to decline.
Firms cited inadequate net return (62% from 22%) as the factor most likely to limit investment in the next 12 months.
Employment contracted modestly in the quarter to September (-8% from +12%). The decline in headcount is expected to accelerate next quarter (-21%).
Rain Newton-Smith, CBI Chief Economist, said: “While activity in the financial sector looks to be in a good position, with profitability and volumes growth remaining strong, the rapid fall in sentiment and lacklustre investment intentions illustrate the challenging conditions that firms find themselves in.
“Recent market volatility stemming from the Government’s “mini”-Budget – alongside other global developments – underlines the clear need to restore macro-stability and boost business confidence. The decision to bring forward the publication of the OBR forecasts and medium-term fiscal plan is the right one and can help demonstrate to investors that the UK has a credible plan for stabilising debt to GDP at a sustainable level.”
Isabelle Jenkins, Leader of Financial Services at PwC UK, said: “Despite the steep drop in sentiment this quarter, it’s good news to see that just over a third of all FS firms have either tangible initiatives in place to support consumers through the cost-of-living crisis or are intending to put such plans in place.
“The headwinds coming from inflation and other economic changes likely played a role in the sinking of sentiment, with over half of firms expecting significant disruption coming from this area.
“However, with 74% of firms seeing clarity as the key to supporting consumers, both in terms of simplifying decision-making process and providing vital educational resources on products, firms seem to see the importance of keeping their eye on the ball. As we enter into another tricky quarter, I hope this stability and clear thinking continues.”
