The latest quarterly survey of the industry, published by the CBI and PricewaterhouseCoopers, also shows that average costs per transaction increased over the past three months at the fastest rate for nine years.
40 per cent said they were up. The balance of minus 14 per cent compares with plus 44 per cent in the previous survey and represents the first fall in business volumes for 18 months. Companies now expect flat volumes over the coming three months.
A balance of plus 15 per cent of firms said average costs rose over the past quarter. This figure compares with minus 11 per cent in June and represents the fastest increase in average costs since September 1995. Another similar cost increase is now expected over the coming three months.
Falling profitability and confidence over the past quarter was coupled with lower average fees and unexpected job cuts. The commissions charged by firms fell at the fastest rate since March 1995 and the decrease in numbers employed is expected to continue.
John Hitchins, UK banking leader at PricewaterhouseCoopers, said: "Overall in the quarter to September 2004, financial services firms experienced the downturn they had forecast in June. There is both growing evidence of a housing market slowdown and a fall in the demand for consumer credit caused by interest rate rises. In the coming quarter, building societies, insurers, traders and fund managers have expressed concerns about the levels of demand across all customer segments".
Ian McCafferty, CBI Chief Economic Adviser, said: "Difficulties with the economic recovery are now spreading to the financial services sector. A stutter in the growth of business has dented firms' confidence. This is a setback for the sector, following a year of growth that peaked last quarter. Companies had been expecting a cooling of activity but the sharp and unexpected fall in profitability will be an unwelcome surprise."
IT investment intentions are at their weakest for 12 years. Spending on vehicles plant and machinery has also been significantly scaled back and investment plans for land and buildings are flat. Uncertainty about demand and inadequate net return are the two main factors limiting investment.
Turning to specific areas of the financial services sector, the largest fall in business volumes was among building societies and life insurers. Only Banking bucked the overall trend, recording strong growth in business volumes.
The sharpest falls in business are now expected by building societies and life insurers while the strongest growth is predicted by securities traders and fund managers.
General insurers and insurance brokers saw the largest increase in average costs.
Over the past quarter, the value of business done over the internet increased but at a slower rate. The same rate of growth is predicted for the coming three months. Despite this growth, the proportion of firms saying over 30 per cent of customers used web-based services fell to 4 per cent from 12 per cent in June. Concerns about security and data protection has become the most significant barrier to e-business development.
