Both optimism and business in the UK financial services industry slumped to new lows in the final quarter of 2002, reversing a surge in optimism during the third quarter of the year. Or so says the latest quarterly survey of City opinion by the Confederation of British Industry and Price Waterhouse Coopers (PwC).
Nearly a third (31 per cent) of companies surveyed said business volumes fell over the period, and only a fifth (21 per cent) experienced any rise in activity. This balance of minus 10 is a steep decline in confidence. It compares with a balance of zero in the first and second quarters of 2002 and of plus 43 in the second quarter. Respondents were less negative about the next three months but still expect business volumes to fall.
The level of business both at home and overseas, says the survey, has also fallen further below normal. A balance of minus 36 in this survey compares with minus 8 in September. For the industry as a whole, it is the steepest falling business volumes since December 1992. “Despite a modest economic pick-up and a period of stabilisation in world equity markets, business optimism has deteriorated over the past three months,” says the survey. “A balance of minus 16 in this survey follows minus 1 in September. Optimism has not fallen this fast since September 2001.”
However, the overall decline masks differences between individual sectors within the industry. General insurers, for example, reported huge growth in business volumes, with every respondent seeing an increase. Finance houses also experienced a significant rate of growth. By contrast, substantial declines were experienced by fund managers, life insurers, insurance brokers and stockbrokers.
“The industry ended 2002 in a worried frame of mind, reflecting
growing concerns about a slowdown in personal sector business and specific fears on the state of the housing market,” says John Hitchins, UK Banking Leader at PricewaterhouseCoopers. ” More jobs are likely to be lost in 2003 as firms grapple with their cost bases in the face of uncertain income prospects.” Ian McCafferty, CBI Chief Economist, adds: “2002 was a difficult
year for many parts of the financial services industry especially
those affected by the performance of the stock market. Across the sector as a whole, the sharp rebound reported in the April to June quarter prompted hopes that the industry would return to its more
normal pattern of continuous expansion. But subsequent surveys, including this latest snapshot, show that difficult conditions remain.”
Overall profitability has fallen after increasing in the two previous quarters. Companies have again reduced total costs and costs per transaction, and expect to go on doing that over the next quarter. But commissions, fees and premiums have fallen by more than costs.
Level of demand and domestic competition are again the most significant expected constraints on business over the next twelve months but they are concerning more respondents than in the last survey. Both were mentioned by a higher percentage of respondents than in September.
Employment in financial services fell for the first time since the March survey but by less than had been expected. Employment is expected to decline more severely over the next three months, though the recent pattern has been for employment to hold up better than anticipated.
Firms reported the fastest growth in the value of their internet activity since the e-business section of the survey began two years ago. The previous survey had suggested the steady growth of internet business had stalled but it seems to have been reinvigorated. However growth was still well below expectations.
A balance of minus 25 suggests many more firms are seeing expectations frustrated than are seeing them met.
The survey was conducted between 25 November and 4 December 2002. A total of 103 companies responded.