The financial services sector has contracted for the first time since September 2013 finds the latest CBI/PwC Financial Services Survey. Anna Tobin reports
The latest quarterly CBI/PwC financial services survey of 84 firms shows a marked difference in confidence between different subsectors within financial services. Sentiment is holding up among insurers who are experiencing a continued expansion in their business volumes, however, volumes are flat or falling for banks, building societies, and specialist lenders, and investment managers are reporting the steepest fall in activity since the financial crisis.
Overall business volumes are expected to fall at a similar pace over the quarter to March. This is the first-time growth expectations have turned negative since December 2009. Macroeconomic uncertainty is viewed as the main reason for this drop, followed by regulatory compliance and preparing for the impact of Brexit.
“A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK’s financial services sector,” says Rain Newton-Smith, the CBI’s chief economist. “Financial services are a bellwether for the wider economy. The persistent weakness in optimism and the deterioration in expectations sound a warning for the outlook.
“It’s clear the sector is grappling with a number of other challenges too, from using data to improve customer experiences, to new entrants to the sector. However, with new risks and demands come opportunities. Insurers, in particular, are pulling ahead, many of whom are moving into areas such as asset management outside of their traditional markets.”
Andrew Kail, head of financial services at PwC, adds: “Continued economic and political uncertainty means last year ended on a more pessimistic note than previous quarters for many working in UK financial services. It’s a broad industry, meaning optimism varies between sub-sectors and companies, but this survey shows that investment managers, who have been more immediately impacted by volatile stock markets, are gloomiest heading into 2019.
“The underlying reasons for this dip in optimism have been around for some time – political and Brexit-related uncertainty, regulatory pressures and a sustained low-interest rate environment impacting margins. Competition from established peers as well as new market entrants is also high on companies’ radars.
“UK financial services firms looking to prosper in 2019 should concentrate on issues they can control. Most importantly, by focusing on clear strategies for delivering value through products and services which meet their customers’ needs, maximising the efficiency of delivering these services – keeping operating costs under control – and using technology to augment the quality and efficiency of activities across their business.”