Optimism among financial services firms about the overall business situation in the UK has declined quarter-on-quarter in the three months to December 2016. This was revealed in the latest financial services survey by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC).
According to the survey findings as seen by IBTimes UK, only 10% of firms said they were more optimistic, while 45% said they were less optimistic. Net balance hence stood at -35%, which was much lower than the -13% seen in the previous quarter.
This marked the fourth consecutive quarter of decline in optimism. It also marked the longest period of declining sentiment since the global financial crisis of 2008, and the sharpest fall since December 2008.
Banks seemed to be the most pessimistic amongst all financial sectors. General insurers and finance houses were also found to be less optimistic. Meanwhile, optimism levels among investment managers, life insurers and insurance brokers had improved when compared to the previous quarter.
In terms of performance, the survey of 103 firms showed that both business volumes and profit growth were found to be pretty much unchanged in the quarter ending December. However, both of them were expected to improve in the first quarter of 2017.
With regards to the challenges seen in 2017, 90% of banks said the major challenge was preparing for the impact of Brexit. However, other financial firms had different concerns. For instance, macroeconomic uncertainty was the primary concern for building societies, while insurance firms were most concerned about competition levels.
With regards to employment, a net balance of +7% firms said they had increased the same in the final quarter of 2016 when compared to the previous quarter. Next quarter was however expected to see a more solid increase.
In terms of investment, the survey found that financial services firms planned to increase IT and marketing spending in the next quarter. Other capital investment, they said would be broadly unchanged: 78% of respondents said they would increase investments to increase efficiency, while 70% said this increase would be amid statutory legislation & regulation. Another 56% said they would increase investment to expand capacity.
Commenting on the overall survey findings, Rain Newton-Smith, chief economist at CBI said, "Despite feeling uncertain about the near future, it's encouraging to see the financial services sector charting a steady course, with firms expecting to raise investment and step up the pace of hiring, while continuing to deliver improvements to the bottom line.
"As we head into the New Year, a mixed picture emerges from financial services firms about their hopes and fears. Whilst Brexit is a particular challenge for banks, and broader economic uncertainty is also a concern for many, firms are also looking to future opportunities, with the promise of FinTech offering an exciting chance for the sector to lead the way in adopting new technology and boosting productivity.
"Ruling out membership of the [European] Single Market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU. Businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU. Business stands ready to support the negotiations to get the best possible deal for the UK by ensuring that the economic case is heard loud and clear."