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First drop in ‘City’ demand for five years

For the first time in five years, the total business volumes in UK financial services fell in the three months to December, say PwC and the CBI, and is on track to hit a decade low this quarter.

"London

February 2019

This is the first contraction in demand since September 2013, according to a joint survey from the Confederation of British Industry (CBI) and Big Four firm PwC. Of the financial services firms surveyed, 24% say volumes were up, while 32% say they were down, a rounded balance of -7%, down from 12% in the three months to September.

The balance is forecast to drop to -9% in Q1 2019 as 12% of firms are expecting volumes to rise in the next quarter, compared to 20% predicting a fall.

The last time the index was this low was in December 2009, when the balance stood at -13%.

“A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK’s financial services sector,” says Rain Newton-Smith, chief economist at CBI. She adds that, as the sector is a bellwether for the wider economy, the deterioration and lack of optimism should act as a warning.

Profits across the sector remain largely flat, with 24% reporting an increase compared to 20% reporting a decrease – a balance of 4% up from -1% in Q3. There are concerns, however, as profits are expected to decrease in the next quarter to -14%.

Andrew Kail, head of financial services at PwC, says that the underlying factors causing low optimism – political uncertainty, regulatory pressure and the low interest rate environment – have been around for a while, and competition from established peers and challengers is also a concern. “UK financial services firms looking to prosper in 2019 should concentrate on issues they can control,” he says.

Employment was stable, with 14% of businesses reporting an increase in employment in Q4 2018, compared to 9% reporting a decrease. Numbers employed are expected to increase rapidly (up 21%) in the next quarter.

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