Financial services companies' confidence improved more than at any time in the last four years as business grew at its fastest rate since last summer, according to the latest quarterly survey of the sector published by the CBI and PricewaterhouseCoopers.
This is the second healthy survey in a row suggesting that a broad-based recovery has now taken over from the sharp downturn of the winter and spring.
Forty-four per cent said they were more optimistic about the business situation in their sector than three months ago while seven per cent were less. The balance of plus 37 compares with plus 8 in the previous survey and is the best since June 1999.
Growth in business volumes was better than expected. Only modest growth had been expected but the balance of plus 37 per cent indicates the fastest rate of growth since June 2002. Expectations for the next three months are the strongest since December 1999.
For the first time in two and a half years more respondents said business was above normal than below. A balance of plus ten in this survey compares with minus ten in June.
The survey suggests the job shedding of the last six months may be coming to an end. Over the last three months job cutting continued but it was less severe than the previous quarter. Looking forward, more financial services companies expect to increase employment over the next three months than expect to reduce it, representing the first increase in employment in the sector in over a year.
Average costs per transaction fell at a similar rate to the previous survey but in June that resulted from a combination of job cuts reducing total costs and rising business. In this survey total costs have barely changed but business has risen more rapidly. As a result overall profitability rose for the second successive quarter.
John Hitchins, UK banking leader at PricewaterhouseCoopers, said: "This latest survey shows an encouraging rise in both confidence and business volumes, and all the sectors most closely exposed to the stock market have reported a growth
in business with private individuals. The return of private investors to the market is an important signal of recovery."
Ian McCafferty, CBI Chief Economist, said: "A second successive healthy survey suggests the recovery in financial services is taking hold and the industry is going into winter this year much more optimistically than it did in 2002. That reflects the continuing stock market recovery and the improved outlook for the global economy. The first expected increase in financial services employment for more than two years and the end of the downward slide in expected IT investment are further indications that a real turnaround is underway."
Business volumes rose sharply in every financial services sector apart from insurance broking, which saw a fall for the seventh successive quarter. The biggest increases in volumes were recorded by general insurers, securities traders and banks. But rising business did not automatically boost confidence in some sectors. For example, building societies were no more confident about their business situation than last quarter despite strong growth in business volumes.
Fund managers, life insurers and securities traders saw the biggest rises in confidence. Insurance broking was the only sector where confidence fell.
The fastest rates of job cutting over the last three months have been among life insurers and fund managers while building societies and finance houses have taken people on at the fastest rate. Looking ahead to the next three months, life insurers expected to cut jobs most sharply while finance houses expected to take on most quickly.
The importance of level of demand as a constraint on business growth fell for the second quarter in a row. In June it was mentioned by 83 per cent of respondents while in this survey that had fallen to 66 per cent. Domestic competition took over as the main constraint. It was mentioned by 77 per cent in this survey compared with 61 per cent last time.
In financial services the internet is growing more quickly than at any time since the e-business section of the survey began in December 2000. Business carried out on the internet increased at the fastest rate recorded so far. But, despite this strong growth, this was the sixth consecutive survey in which expectations were not met.
