UK financial services companies are more optimistic than they have been at any time for five years. Or so suggests the regular Confederation of British Industry – Price Waterhouse Coopers quarterly survey of the sector.
Volumes and profitability have both grown strongly since the end of last year, says the survey, for the fourth consecutive quarter.
Activity in the wider economy gave the sector a major boost, reinforcing the recovery which began early last summer.
Asked whether they were more optimistic about the business situation in their sector than three months ago, 51 per cent said they were more and just seven per cent said they were less. The balance of plus 44 per cent compares with plus 29 per cent in the December survey and is the strongest balance since June 1999.
Business volumes improved sharply over the past three months. A balance of plus 37 per cent compares with plus 27 per cent in December. After falls in early 2003, business has now been growing solidly for a year and expectations for the three months ahead were the best since December 1999.
The proportion of companies saying business was above normal outweighed those saying it was below for the third successive quarter.
“This latest survey shows business confidence among financial services companies rose faster than it has for five years,” says John Hitchins, UK banking leader at PricewaterhouseCoopers. “All sectors reported growth over the last quarter, albeit at varied rates. All sectors also expected growth this quarter. But one grey cloud was a sharp rise in concern over the impact of statutory legislation and regulation on business growth.”
Doug Godden, CBI Head of Economic Analysis, said a year of solid business growth, the revival in the stock market last year and growth in the wider economy have given UK financial services firms a substantial boost. “The survey shows firms were confident about future demand prospects, although I would warn that the full impact of events following the terrorist attacks in Spain remains to be seen,” he says.
Total costs rose for the second successive quarter but the sharp increase in business volumes meant average costs per transaction continued to fall. As a result overall profitability increased again. It increased less quickly than last quarter but profitability has also now risen for four quarters in a row.
Financial services companies expected profitability to increase faster over the next three months than since September 2000.
Job cuts had been expected in the first quarter of 2004. In fact employment increased again. Expectations for job creation over the next three months were the strongest for four years.
Business volumes rose across financial services but there are some dramatic contrasts between sectors. The strongest growth was among general insurers (where every respondent said business had increased over the last three months), fund managers and building societies. Only very slight growth was recorded by banks and insurance brokers.
Looking ahead, every sector expected more growth over the next quarter but the strongest expectations were among life insurers and general insurers while fund managers and finance houses expected very modest growth.
Profitability grew fastest among fund managers, securities traders and general insurers. Insurance brokers suffered the biggest falls.
The biggest increases in employment were among fund managers, general insurers and securities traders. Those are also the sectors with the strongest expectations for employment growth over the next quarter.
The value of business done over the internet steadily increased and was expected to continue to increase, though the rate of growth slipped backed slightly from the three-year high recorded in December and was expected to slow further of the next quarter.
The biggest barrier to the growth of e-business was customers preferring other routes though that was expected to decline over the year ahead when customers not knowing how to use websites for transactions will be the main barrier.