Gloom reigns in financial sector with profits set to tread water

DEEPENING clouds over financial services will mean profits are set to barely tread water in the sector over the next three months for the first time in two years, a new survey says today.

Business sentiment in the industry against the backcloth of eurozone volatility has also fallen for the first time since March 2009, says the survey by the Confederation of British Industry and accountancy giant PriceWaterhouseCoopers.

Today’s report also warns the rate of growth in business volumes in financial services is expected to slow further between now and September after a slowdown in the quarter to September, and that unemployment is expected to rise.

“After a torrid couple of months on global financial markets, the mood has clearly darkened,” Ian McCafferty, the CBI’s chief economic adviser, said. “Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.”

The survey says of the 84 financial services firms interviewed in the latest quarter, 33 per cent saw business volumes rise, and 24 per cent reported a fall.

The resulting rounded balance of plus 10 per cent is the lowest since the plus 9 per cent in the quarter to June 2010 and down on the plus 17 per cent in June 2011.

On profitability, 34 per cent of firms reported a rise and 18 per cent a fall, giving a positive balance of 16 per cent.

However, financial businesses said they expected the pace of growth to slacken in the final quarter of 201.

Stephanie Bruce, head of financial services at PwC in Scotland, commented: “The heightened level of uncertainty in the financial markets is undoubtedly impacting both financial results and confidence. With a significant level of change anticipated for the next year, primarily through ongoing regulatory drivers, this uncertainty can also impact on decision making of key projects, IT spend and resources.”

Headcount numbers rose modestly (plus 5 per cent) in the three months to September, but at a far slower rate than the plus 20 per cent expected.

Andrew Gray, UK banking leader at PwC, said: “Many banks continue to control costs aggressively and as a result expect further headcount reductions.”

McCafferty said 1,000 jobs had been created in the sector in the past quarter, but the forecast was for 8,000 job losses over the next three months. However, he added that it was a relatively small part of the sector’s 900,000 workforce.

As uncertainty about the delivery of a Greek bail-out package and future of the euro currency remain a volatile backdrop for UK financial services, the survey says UK financial firms have become markedly more pessimistic than six months ago.

Gray said UK banks also had big business outside the eurozone that would help limit the fallout from any failure of the Greek bail-out or failure of the European single currency.

If either of those things happened, he said he would expect “a marked decline in confidence but I’m not sure it would be cataclysmic”.