In the first quarter of 2003, financial services companies in the UK cut jobs at the fastest rate for more than six years, as business fell for a second successive quarter.
The CBI/ PricewaterhouseCoopers survey of the industry, published today, shows 13 per cent of companies increased staffing during the first quarter of 2003 but 43 per cent decreased it. The balance of minus 30 per cent indicates the fastest rate of job cutting since September 1996. Recent surveys show firms not reducing jobs as severely as anticipated but this quarter gloomy expectations have been met.
For the first time since March 1993 the survey recorded two consecutive quarters of declining business. The industry had until recently become used to robust and continuous growth.
Forty per cent of companies said the volume of business was down over the past three months but 28 per cent said it was up. The balance of minus 12 per cent compares with minus ten per cent last quarter, the weakest figure since December 1992. Companies also said the level of business was well below normal.
In the face of declining business, stock market weakness and global tensions, optimism fell more quickly than at any time since September 1998. Fifty-five per cent of companies were less optimistic than three months ago while only four per cent said they were more. The balance of minus 51 per cent compares with minus 16 in December.
Companies see little sign of improvement. Over the next quarter companies expect business volumes to go on falling but less rapidly. Over the next year, level of demand is seen as by far the biggest constraint on business -cited by 93 per cent of respondents – with domestic competition the second most important constraining factor.
Falls in business over the past three months were most dramatic in those sectors most closely linked with the stock market. They include life assurers, fund managers and securities traders. The best performing sectors over the past quarter were banking, finance houses and building societies, though confidence still fell markedly for banks and building societies. Building societies are especially gloomy about business volumes in the months ahead.
General insurers and life insurers cut jobs at the fastest rate while building societies and finance houses, took on staff. Overall companies expect to go on cutting jobs over the next three months though at a slightly reduced rate.
John Hitchins, UK Banking Leader at PricewaterhouseCoopers, said: “A second quarter of declining profitability has triggered a sharp fall in business confidence, made worse by uncertainties about the future outlook. The extent of job cutting suggests that companies believe an upturn is not imminent.”
Ian McCafferty, CBI Chief Economist, said: “The drop in business confidence has been dramatic, even though the fall in business activity was no worse than in the previous quarter. Short-term uncertainties are an important factor but widespread concerns about demand over the year ahead indicate that companies are also worried about more fundamental weakness.”
Total costs were stable over the last quarter and average costs per transaction rose slightly. So, with fees, commissions and premiums falling as well as business volumes, overall profitability has fallen for the second successive quarter. It is expected to go on falling over the next quarter but less rapidly.
The growth in internet business for financial services companies continued to accelerate. The value of internet business grew faster than at any time since the e-business section of the survey began two years ago. But expectations are still not being met. For the fourth consecutive quarter more firms saw their expectations frustrated than achieved, although fewer firms were disappointed than in the previous quarter.
Lack of understanding by customers and suppliers is seen as the biggest barrier to e-business growth followed by lack of security standards. Looking ahead to the next three months, they are expected to continue as the main two barriers but they are becoming steadily less important. In this survey fewer companies saw them as barriers than in the December survey and that trend is expected to continue.