UK financial services firms report strong growth

Allan McGrath, financial services partner at PwC said 'Firms appear to be much better equipped to cope with what has been an unrelenting regulatory and compliance agenda." Picture: TSPL
Allan McGrath, financial services partner at PwC said 'Firms appear to be much better equipped to cope with what has been an unrelenting regulatory and compliance agenda." Picture: TSPL
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FINANCIAL SERVICES firms are seeing their strongest growth in seven years, according to latest quarterly figures from the CBI and accountants PwC.

The UK wide poll found 60% of firms said business volumes were up while 11% said they were down in the three months to September, giving a balance of plus 49% - which was the best reading since the recession in 2007.

It said the momentum was expected to continue into the coming quarter.

Rising volumes helped push up overall profitability, which bounced back after the previous quarter’s contraction, the CBI said - despite costs rising at a record pace.

Allan McGrath, financial services partner at PwC in Scotland, said: “As we reach a significant milestone in our survey work with the CBI, it is encouraging to see an increasingly optimistic industry, particularly with regards to growing volumes and revenues.

“Firms appear to be much better equipped to cope with what has been an unrelenting regulatory and compliance agenda, although the twin demands of Solvency II and the increasing FCA focus remains a concern.

“The industry in Scotland - and the UK - is very much focussed on boosting its core business through customer retention, product and service development, and greater efficiency. Investing in systems, IT and digital capabilities is also a priority across all sectors, especially within banking, asset management and insurance sectors.

“With digital commerce a growing phenomenon across the industry we can expect this to become a key battleground between existing firms and new entrants, who don’t have the chains of legacy systems to hold them back. Only time will tell how well individual firms rise to this rapid pace of change and, crucially, the risk and security challenges brought by what could be described as an intermeshed social, technological and ethical spiders web.

“It’s clear that in the forthcoming war for talent, customers, growth and market share, there are many opportunities for those with the foresight, leadership and appropriate resources.”

The study found that growth in optimism about the overall business situation has been easing since the start of the year, perhaps reflecting uncertainty about the outcome of the Scottish referendum - which fell after the survey period - and the situation in the Middle East and Ukraine.

However, optimism has still risen at an above-average pace.

The poll found firms had returned to hiring following the previous quarter’s fall in headcount, but this was expected to stabilise in the next quarter.

The CBI said that taking into account long-run trends, the results suggested employment in financial and insurance activities was forecast to stand at little over 1.15 million by the end of 2014, or 28,000 higher than the year before.

Rain Newton-Smith, CBI director for economics, said: “The UK’s financial services sector is enjoying its strongest run of growth since 2007, with activity rising across all customer categories and profitability bouncing back.

“The spike in costs was offset by a steep fall in the value of non-performing loans, suggesting that much of the fallout from the financial crisis is now working its way out of the system.”

The impacts of competition and regulation such as the prospect of a financial transaction tax were among the top concerns for the coming year, she added.

“However, with strong broad-based growth, financial services firms are relatively upbeat about future prospects, despite some big geopolitical risks that remain on the horizon.”