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Optimism is returning to the financial services sector

Optimism in the financial services sector is improving at its fastest pace since 2015 as trading volumes are expected to return to growth in 2020, according to the latest CBI/PwC Financial Services Survey.

The quarterly survey of 94 firms was conducted before the general election and found that optimism about the overall business situation in financial services rose for the first time since March 2018 and at the fastest pace since June 2015.

Sentiment was mixed by sector, with investment, insurance broking and general insurance seeing the biggest improvements. Optimism was flat in banks and building societies and actually fell in finance houses and life insurance.

Despite the renewed optimism in financial services, overall conditions remained tough in the last quarter of 2019, with business volumes falling at the fastest pace since September 2012.

Profits also fell at the quickest pace since June 2009 in Q4 2019, with profitability in banking, life insurance and insurance brokers worst affected.

However, looking ahead to the quarter to March 2020, overall business volumes are expected to return to growth. 33 per cent of firms surveyed expect volumes to rise against 20 per cent expecting them to fall, giving a balance of +14 per cent.

Rain Newton-Smith, CBI chief economist, said: “It’s great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.

“However, the sector isn’t quite out of the woods yet. Against the backdrop of another fall in business and profits, Brexit uncertainty continues to drag on investment plans, and concerns over labour shortages have spiked.

“As the UK begins a new future outside the European Union, the Government must do everything it can to support and stimulate one of the UK’s most globally competitive sectors, so that expectations of an upturn can come to pass – both over the next quarter and beyond.”

Andrew Kail, head of financial services at PwC, added: “The stirrings of optimism represent a significant turnaround given the flat and falling optimism that has beset the past four years.

“An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the sector, following the general election.”