A survey of 95 firms carried out by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC) suggests that recovery is gaining pace in the financial sector, with 44 per cent saying that their business volumes increased in the three months to March, compared to 21 per cent reporting a fall.
Though the CBI warns that conditions remain "challenging", this growth reflects the first rise in optimism among financial services firms in a year, as well as an unexpected 19 per cent increase in employment in the sector.
In the survey, conducted between 23 February and 8 March 2012, 23 per cent say that growth was well above the long-run average; 12 per cent feel the upsurge was driven primarily by business with private individuals. Over the next quarter, 34 per cent of firms expect growth to improve, while a fifth of respondents expect a similar level of improvement in the next quarter.
Though confidence is up among the corporate sector, large businesses remain cautious about raising spending. Fifty-five per cent cite concerns about demand and 46 per cent consider inadequate returns as the factors most likely to limit capital expenditure over the next 12 months. Meanwhile, 35 per cent highlight the shortage of labour as a significant constraint.
Ian McCafferty, chief economic adviser at CBI, said: “Financial services sales volumes and income continued to rise this quarter, putting the sector’s recovery on a firmer footing. Optimism levels and business investment intentions have also improved, in contrast to last quarter, as some of the worst risks around the euro area crisis have eased . . . The unexpected rise in employment is a further encouraging sign for the sector. But with the current level of business regarded as below normal, conditions still remain challenging for financial firms.”
Kevin Burrowes, UK financial services leader at PwC, said: “More positive economic data and a slightly more stable environment in the eurozone mean that banks are much more confident about their sector. The picture is not so rosy for building societies which, while displaying more confidence than in the last quarter, are still concerned about asset quality and the impact of the regulatory burden.”
Life insurance business volumes increased for a ninth consecutive quarter, and optimism among general insurers rose very modestly over the three months to March.