Cautious optimism for finance sector after gloomy 2016

Confidence among Britain's financial services firms dropped again in the last three months of 2016, although some sectors forecast an improvement in business conditions in the current quarter, according to research published today.

The CBI said that 2016 was the 'gloomiest' period for the finance sector since the 2008 global downturn. Picture: Metropolitan Police/@MPSintheSky/PA Wire
The CBI said that 2016 was the 'gloomiest' period for the finance sector since the 2008 global downturn. Picture: Metropolitan Police/@MPSintheSky/PA Wire

The latest survey of finance firms by the Confederation of British Industry (CBI) and PwC found that optimism regarding the overall business situation fell for the fourth quarter in a row, making 2016 the “gloomiest” period for the sector since the 2008 financial crisis as Brexit fears and global uncertainty took their toll.

Banks, general insurers and finance houses were the most pessimistic, as sector profit growth ground to a halt and business volumes fell flat in final quarter of the year.

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About 45 per cent of firms were less optimistic generally compared to the previous three months, while only 10 per cent were more optimistic, giving a balance of minus 35 per cent. That is compared to minus 13 per cent in quarter to September.

However, the pace of hiring is expected to accelerate in the current quarter, and giving further cause for celebration was the expectation that profitability will take a turn for the better, although not for building societies, as cost pressures ease off.

CBI chief economist Rain Newton-Smith said that despite uncertainties over the outlook, “it’s encouraging to see the financial services sector charting a steady course, with firms expecting to raise investment and step up the pace of hiring, while continuing to deliver improvements to the bottom line.

“As we head into the New Year, a mixed picture emerges from financial services firms about their hopes and fears.”

Looking ahead, the biggest challenges for financial-sector firms were identified as preparing for the UK leaving Europe, plus macroeconomic uncertainty and regulatory compliance.

Bearing in mind Prime Minister Theresa May’s decision to rule out single-market membership,

Newton-Smith added: “Business stands ready to support the negotiations to get the best possible deal for the UK by ensuring that the economic case is heard loud and clear.”

Meanwhile, a separate study published today is challenging the Bank of England over its “unconventional” monetary policy, calling for ultra-low interest rates and quantitative easing to end now.

Brian Sturgess argues in the report, published by the Centre for Policy Studies, that the central bank’s approach is having “severe” financial economic consequences, exposing the economy to great risk, and failed to stimulate economic growth or reduce deflationary pressures, for example.

Bank governor Mark Carney last week said household debt and rising consumer credit will be a crucial consideration for the bank’s monetary policy committee as it decides whether to raise interest rates in coming months.