Market volatility hits finance firms’ volumes

THE volatility in financial markets over the summer has hit the wider sector, with overall business volumes growing at their slowest in two years, a new survey out today reveals.

Rain NewtonSmith says volatility has left its mark on

Optimism among financial services firms north and south of the Border has also been shaken after two and a half years of previous “continuous improvement”, says the CBI/PwC financial services survey for the three months to ­September.

Rain Newton‑Smith, the CBI employers’ lobby director of economics, said: “The winds of volatility blowing through global markets have left a clear mark on the financial services sector, impacting business volumes and investment intentions, particularly in investment management and securities trading.”

Sign up to our daily newsletter

The i newsletter cut through the noise

The survey says financial services firms expect growth to tick up in the next three months, but to remain below the robust growth seen earlier in 2015.

Newton‑Smith said: “Slower growth in China and other emerging markets has had a knock-on impact on confidence in the world economy, with the Federal Reserve holding off raising interest rates in the United States.”

Key findings of the survey showed that 25 per cent of financial services firms – which include banks, insurers, asset managers, brokers and building societies – said that business volumes were up while 21 per cent said they were down.

The positive balance of + 4 per cent is the slowest rate of volume growth since September 2013 when the figure was -10 per cent.

A total of 28 per cent of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 26 per cent said they felt less optimistic.

The positive balance of + 2 per cent is the lowest rate of growth in optimism since September 2012. The global volatility had particularly impacted the banking sector, the survey says. 
Kevin Burrowes, UK financial services leader at accountancy giant PwC, commented: “Business confidence among banks flat-lined in the quarter leading to September 2015, leaving the sector cautious over its short-term outlook.

“Recent macro-economic events such as the fall in oil prices, China’s Black Monday, and the ongoing turmoil in global stock markets might have fuelled this sentiment. With interest rates expected to remain on hold, growth for UK banks continues to be challenging.”

Fraser Wilson, financial services partner at PwC in Scotland, said that the industry “both in Scotland and across the UK is being more cautious on its short-term growth prospects.

“And with interest rates likely to remain at historically low levels, growth for UK banks remains challenging as we head into 2016”.

Across the wider sector, income from fees, commissions and premiums continued to decline at the same rate as in the previous quarter, with a negative balance of -20 per cent.

More positively, the survey adds, building societies, finance houses and life insurance business volumes continued to grow at a “healthy” pace in the period – in the life insurance business for the fifth consecutive quarter.

Elsewhere, the report shows that overall profitability in the financial services sector grew strongly, with 46 per cent of firms reporting increased profits and 17 per cent saying earnings fell. This gave a positive balance of +30 per cent.

Employment numbers fell slightly on the previous three months, but remained higher than at the start of the year, today’s survey says.

“Firms do not envisage any increase in headcount over the coming three months, but will continue to spend more on training,” the survey says.

Firms plan to scale back investment in most other areas, including marketing, land and buildings.