UK financial services confidence fell before general election

Sentiment in the City was deteriorating before the general election, but investment managers were still optimistic, the latest financial services survey from the CBI and PwC shows.

Fifteen per cent of firms said they were more optimistic about the overall business situation compared with three months ago, while 25 per cent were less optimistic.

Optimism has now declined in five out of the last six quarters.

The survey was completed in the two weeks leading up to 1 June before the shock result of Theresa May’s snap election, which resulted in a hung parliament.

Banks and life insurers were less optimistic than the previous three months, but investment managers along with insurance brokers and finance houses were more optimistic.

Private and corporate clients across financial services drove healthy growth over the quarter with building societies the only sector that saw no increase in volumes bringing an end to almost two years of uninterrupted growth.

Forty seven per cent of firms said that business volumes were up, while 3 per cent said they were down, with 40 per cent of expecting volumes to rise next quarter, and 21 per cent expect them to fall.

Profitability is expected to rise at a moderate pace and employment is expected to continue to grow at a healthy pace in the next quarter.

CBI chief economist Rain Newton-Smith, CBI Chief Economist, says there are mixed messages coming from the sector.

“Whilst business activity is holding up strongly, optimism took another dive, which likely reflected a mix of Brexit uncertainty and concerns that financial market conditions could tighten.

PwC head of financial services at PwC Andrew Kail attributes to the “counterweight of short-term performance against medium-term outlook”. 

“Currently the financial services sector is performing well in both business volume terms and underlying profitability. However, another quarter of falling optimism points to an industry harbouring concerns about the future.

The UK will continue to be a leading financial centre, but political uncertainty and the ongoing wait for an agreed Brexit blueprint are fuelling more questions about companies’ futures and the performance of the wider economy.

“In response, firms continue to fine tune their contingency plans, which include options for establishing operations in the EU27 and ensuring they are adequately resourced.