Financial services optimism falls as Autumn Budget measures loom over investment plans

Optimism in the FS sector fell at the quickest pace since September 2022, according to the latest CBI Financial Services Survey. That is despite business volumes growing at a faster pace in the quarter to December.

The quarterly survey, conducted between 21 November and 9 December 2024, showed that FS firms expect a similarly quick pace of volumes growth over the next quarter. Investment intentions were mixed, with around two-thirds of firms reporting that “other” factors, mainly linked to the cost implications of Autumn Budget measures, were likely to limit investment over the next 12 months.

Key findings:

• Optimism in December, compared with three months ago, fell at the fastest pace since September 2022 (weighted balance of -28% from -13% in September).
• Growth in business volumes picked up in the quarter to December (+32%) after a modest increase in the three months to September (+6%). Firms expect a similarly quick pace of volumes growth over the next three months (+32%).
• Average spreads fell at a survey-record pace in the quarter to December (-62% from -55% in September) and are expected to decline at a slightly slower rate over the next three months (-57%).
• The value of non-performing loans increased in the quarter to December (+18% from 16% in September) at the fastest rate since March 2021. Their value is expected to rise at a broadly similar pace over the next quarter (+21%).
• Profitability fell at a more modest pace in the quarter to December (-14% from -43% in September). FS firms expect a significantly quicker drop in profitability over the next three months (-55%).
• Headcount declined at a quicker rate in the quarter to December (-25% from -15% in September). Firms expect headcount to fall at a similar pace next quarter (-26%).
• Firms expect to increase IT investment in the next 12 months (compared to the last 12). However, capital expenditures on land & buildings and vehicles, plant & machinery are expected to fall.
• Around two-thirds of firms reported that “other” factors were likely to limit capital expenditure over the next 12 months (65%, near last quarter’s record high of 66%). Comments highlighted that companies are most concerned about the impact of substantial cost increases from the Autumn Budget on investment.

Louise Hellem, CBI Chief Economist, said:

“FS firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years. These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth. The survey also highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.

“With much global uncertainty, low fiscal headroom and an urgent need to inject momentum into the economy, delivering a comprehensive financial services strategy and implementing the Mansion House reforms in full is vital to achieving the UK’s growth ambitions. The financial services sector is a vital asset that underpins our economy and provides the stable framework firms need to invest and grow.”