Financial services optimism plunges amid Brexit ‘national emergency’

Financial services optimism is falling at the fastest pace since the financial crisis, new research suggests, prompting senior economists to call for a swift resolution to the “national emergency” of Brexit.

Rain Newton-Smith, CBI chief economist, said the results showed Brexit uncertainty continues to 'chip away' at the economy.
Rain Newton-Smith, CBI chief economist, said the results showed Brexit uncertainty continues to 'chip away' at the economy.

Sentiment and business volumes deteriorated sharply in the UK’s financial services sector during the last quarter, with optimism plummeting to its lowest point since December 2008, according to the latest survey from the Confederation of British Industry (CBI) and PwC.

The quarterly review of 84 financial services firms found a balance of -43 per cent of respondents felt less optimistic about the overall business situation compared to three months earlier.

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This represents a drop from -24 per cent in the previous quarter and means optimism in the industry has now been either flat or falling for more than three consecutive years.

Business volumes fell for the second quarter running – and at the fastest pace since September 2012 – to -12 per cent with the greatest drag coming from the investment management sector. Insurance brokers were the only sub-sector to report robust growth.

The majority of respondents forecast business volumes will fall further in the quarter to June, with the weakest expectations since September 2008.

A balance of -21 per cent of firms experienced a drop in head count, driven predominantly by a sharp decline in the banking sector, although +17 per cent said they predicted employment growth would pick up in the coming months.

Rain Newton-Smith, CBI chief economist, said: “The alarm bells ringing at the state of optimism in the financial services sector have now reached a deafening level.

“Not only has it plummeted at the fastest rate since the depths of the financial crisis, it has been falling or flat since the EU referendum.

“Brexit is now a national emergency. No-deal has to be clearly ruled out, then MPs must finally compromise and deliver a solution that protects jobs, livelihoods and communities across the UK.

“It is in absolutely nobody’s interest for the uncertainty to drag on, and continually chip away at our economy and financial services sector.”

However, profits in the industry as a whole saw their strongest growth in a year, driven by the banking and insurance sector.

The survey also found that firms continue to plan investment in IT and marketing (with the strongest expectations since June 2015), but expect to cut back in other areas of capital spending.

Andrew Kail, head of financial services at PwC, said the sector is “ramping up spending on training, technology and marketing”.

He added: “However, it remains to be seen whether our financial services businesses will retain their current global footprint as political negotiations play out.

“Clarity, certainty and communication are vital if the UK is to protect its position as the leading financial centre.”