Financial Services report slowing growth and profits falling at their fastest rate in 15 years – Financial Services Survey

Financial services business volumes growth slowed in the third quarter, after strong growth last quarter. That’s according to the latest CBI Financial Services Survey. Firms expect volumes to be broadly flat over the next three months.

The quarterly survey, conducted between 29 August and 16 September, also showed that optimism decreased, and headcounts fell after five consecutive quarters of growth. Profitability fell sharply in the quarter to September, at its quickest rate since March 2009. Average spreads declined at a survey record pace (since 1989), while the value of non-performing loans rose at the fastest pace since March 2021.

Key findings: 

• Growth in business volumes slowed in the quarter to September (weighted balance of +6%) after a solid increase in the quarter to June (+22%). Firms expect volumes to be broadly unchanged (-1%) in the next three months.

• Optimism decreased in September, compared with three months ago (-13% from +17% in June).

• Average spreads fell at a survey-record rate in the quarter to September (-55% from -16% in June) and are expected to decline at a similarly rapid pace over the next three months (-54%).

•  The value of non-performing loans increased in the quarter to September (+16% from +11% in June) at the fastest rate since March 2021. Their value is expected to rise at a similar pace over the next quarter (+15%).

• Profitability fell in the quarter to September at the fastest rate since March 2009 (-43% from -5% in June). FS firms expect profitability to be flat over the next three months (+1%).

• Headcount shrank in the quarter to September (-15% from +18% in June) for the first time since March 2023. Firms expect headcount to fall at a similar pace next quarter (-16%).

• Firms expect to decrease investment in land & buildings in the next 12 months (compared to the last 12) to the greatest extent in survey history. Capital expenditure on vehicles, plant & machinery is also expected to fall, while investment in IT is set to increase modestly.

• A record share of firms (66% from 29% in June) reported that “other” factors are likely to limit capital expenditure over the next 12 months, which was widely attributed to uncertainty about the “tax environment” due to the upcoming Autumn Budget.

• Inadequate net return was the second-most cited factor likely to limit future investment, rising to its highest since September 2022 (46% from 22% in June).

• The share of firms citing cost of finance as a concern fell considerably (1% from 36% in June).

Louise Hellem, CBI Chief Economist said:

“After two strong quarters of activity this year, financial services firms are now reporting slower business volumes growth and falling optimism. A record-fast fall in spreads and moderate rise in non-performing loans have contributed to profits falling at their quickest rate since 2009. Investment intentions have also deteriorated further, with companies raising concerns around inadequate net returns and the tax implications of the upcoming Autumn Budget.”

“This means that the government must provide firms with the clarity and confidence they need to invest in the UK. Publishing a business tax roadmap, a clearer, fairer and more competitive business rates system, and keeping up momentum on recently announced planning reforms, along with a modern, international industrial strategy, would go a long way in delivering the confidence businesses and investors are looking for.” 

Notes to Editors: The latest Financial Services Survey was conducted between 29 August and 16 September. 141 firms replied.      

A ‘balance’ is the difference in percentage points between the weighted percentage of firms answering that output is “up” and the percentage answering “down”. For example, if 30% of firms say that business volumes are is up, 60% that it they are unchanged, and 10% that they are down, the balance statistic is +20%.