Slow growth suffered by the financial service sector

The Volume of business across the UK financial services sector grew in the three months to June, but at a slower pace than in the last three quarters, reports the latest CBI/Pwc financial services survey.

At the same time, the value of fee, commission or premium income rose strongly for the second quarter running, while the value of net interest, investment or trading income grew at its fastest rate since March 2007.

Asked how their business volumes fared in the three months to June, 44% said that volumes rose and 28% said they fell. The resulting rounded balance of +17% was slower than expected (+30%) and below the balances recorded in the preceding three quarters. Growth in business volumes is expected to slow further in the next three months, with the slowest expectation (+8%) since December 2009 (-13%).

Business volumes grew across all the sub-sectors, apart from banking and securities trading, where volumes fell, and insurance broking where business was fairly flat.

Business slowed most markedly with private individuals, but firms expect business to grow across all of the customer categories, including industrial & commercial companies, financial institutions and overseas customers, over the next three months.

Ian McCafferty, CBI Chief Economic Adviser, said:
“The financial services sector continued to recover over the past three months, but with slower volume growth, following three stronger quarters. What is heartening is the unexpected, strong rise in numbers employed in the sector, the fastest since the financial crisis began in 2007.

“Despite sharper cost increases and a small rise in non-performing loans, firms’ profitability continued to improve with growth in volumes and incomes, and a slight widening of spreads.”

For the first time since September last year, numbers employed in financial services rose, and this was at the fastest pace since September 2007. Firms expect numbers employed to continue growing, with the highest hiring expectation recorded since June 2007.

This is reflected in the increase in staff costs as a proportion of total costs, with the highest balance recorded since December 2007 during the past three months. Spending on training also grew, and is expected to pick up further next quarter.