Financial services growth momentum continues - CBI Financial Services Survey

Financial services business volumes grew solidly in the second quarter, building on a strong rebound in Q1, according to the latest CBI Financial Services Survey. Firms expect volumes to increase at an even faster rate over the next three months.

The quarterly survey, conducted between 30 May and 17 June, also showed that optimism increased and headcounts grew for the fifth consecutive quarter. However, profitability fell slightly, and the value of non-performing loans increased for the second consecutive quarter.

Key findings:   

• Business volumes grew solidly in the quarter to June (weighted balance of +22%) for the second consecutive quarter (+36% in March). Firms expect volumes to increase at an even quicker rate in the next three months (+53%).

• Optimism increased in the quarter to June, compared with three months ago (+17% from +29% in March).

• Average spreads declined in the quarter to June (-16% from -19% in March) but are expected to increase next quarter (+11%).

• The value of non-performing loans increased again in the quarter to June (+11, unchanged from March), seeing the joint-fastest rise since early 2021. However, they are expected to be unchanged over the next quarter (+1%).

• Profitability fell slightly in the quarter to June (-5% from +37% in March). The decline is set to be short-lived, with FS firms expecting profitability to increase strongly next quarter (+46%).

• Headcount grew in the quarter to June (+18% from +40% in March), but this marked the slowest rise in the five-quarter run of growth seen so far. Firms expect headcount to grow at the same pace next quarter (+18%).

• Firms expect to increase investment in IT in the next 12 months (compared to the last 12). However, capital expenditure on land & buildings and vehicles, plant & machinery is expected to fall considerably.
• The cost of finance was the most commonly cited factor likely to limit investment over the next 12 months, rising to its second-highest share on record (36% from 11% in March).
• The share of firms citing inadequate net returns as a concern fell noticeably from March (22% from 46%), while the proportion citing demand uncertainty also fell sharply (to 16% from 53%).

Louise Hellem, CBI Chief Economist said:   

“Financial services firms have seen a second strong quarter in a row this year, with optimism and business volumes continuing to rise. Positive business conditions have supported a further increase in headcount in the sector. However, investment plans remain mixed as concerns around the cost of finance were at their most widespread in nearly a decade.

“Businesses will be looking at the General Election, and the clear mandate given to the incoming government, as a reset moment for the economy. That means looking to the new government to hit the ground running and staying laser-focused on delivering growth. It’s those tough decisions, taken early, that will help us to attract investment, seize growth opportunities and revitalise our pitch to global investors.”