Optimism in UK’s Financial Services Sector Plummets
The UK’s financial services sector reported a sharp decline in optimism over the last three months, with sentiment deteriorating in all but one quarter since the start of 2016.
Optimism among asset managers and other financial services firms fell sharply in the third quarter of 2018, amid growing pressure from a subdued economy, Brexit, regulation and rapid advances in technology, according to the latest CBI/PwC Financial Services Survey, which reveals that optimism has now fallen or remained flat for the longest period since the 2008 financial crisis.
Although business volumes increased slightly in the last quarter – particularly for insurers – investment managers reported a “striking loss of momentum” that has continued through 2018. Growth expectations are at their weakest point since 2009, profits are flat and employment has stalled, with staff cuts in banking outweighing increases in other sectors.
Rain Newton-Smith, chief economist at the Confederation of British Industry, said: "While it’s good to see that demand for financial services is holding up, with business volumes edging higher last quarter, it’s simply impossible to ignore the dangerous signs of strain on the sector arising from the combined challenges of a subdued economy, Brexit, regulation and rapid advances in technology."
“For the sector to continue to be one of the UK’s most attractive economic assets, it is fundamental that a withdrawal agreement with the EU is agreed,” she said, adding that this would ensure temporary relief for the financial services sector.
Andrew Kail, head of financial services at PwC, said: "There are understandable concerns around the shockwaves created by Brexit alongside dealing with the impacts of regulation and technology. Addressing how these issues manifest themselves must be at the heart of firms’ contingency plans over the next six months."
The CBI/PwC research coincided with a survey from the British Chambers of Commerce (BCC) that found 21 per cent of businesses will cut investment if there is a ‘no deal’ Brexit outcome, one in five will move part or all of their businesses to the EU, and 18 per cent will cut recruitment.
“In the long run, it’s clear the sector needs to think more creatively about recruiting and retaining its skilled staff,” Newton-Smith continued.
“Investing in employees with the right skills – especially technological skills – and ensuring the sector offers a more diverse and attractive career path are key.”