The latest quarterly survey of the industry, published today (Monday) by the CBI and PricewaterhouseCoopers, shows five per cent of companies reduced employment over the last three months but 41 per cent took staff on. The balance of plus 36 per cent is the fastest rate of growth recorded since the survey
began in December 1989. It compares with a balance of only plus five per cent in the previous survey.
Companies expect further growth in employment over the next three months. It is not expected to be as rapid as over the last quarter but expectations are still stronger than at any time since December 1999.
The increase in employment came as business volumes grew more strongly than for nearly four years. Fifty-three per cent said business was up compared with the previous quarter while nine per cent said it was down. The balance of plus 44 per cent is the strongest since December 1999. But volumes are expected to fall modestly over the next quarter, the first time falls have been expected since March 2003.
The expectation that activity levels may have peaked for now is reflected in their optimism. On balance respondents are still more optimistic about their business situation than three months ago but the rise was less marked than in the previous three surveys.
John Hitchins, UK banking leader at PricewaterhouseCoopers, said: "Despite an overall increase in confidence and continuing recovery over the last quarter, the contrasting results concealed in the latest survey suggest that the industry is struggling to predict future trends. Competition has remained the main
preoccupation for financial services firms whilst legislation and regulation have surprisingly become less of a concern."
Ian McCafferty, CBI Chief Economic Adviser, said: "The financial services industry has had a really strong twelve months and the recovery, which began this time last year appears to have reached a short-term peak. The fastest growth in business for nearly five years has led to a rapid pick up in financial
services jobs. Business growth outpaced rising wage bills allowing profitability to rise strongly. The expectation that future growth is unlikely to repeat the rapid recovery of recent months is not surprising but implies that profitability will grow more slowly next quarter."
Asked about factors that would limit capital investment over the next year, 29 per cent of companies said shortage of staff would hold back investment over the next year compared with 13 per cent three months ago. Uncertainty about demand remained the most significant factor.
The strongest employment growth was among fund managers, general insurers and building societies. Only life insurers reported they had cut staff.
Business volumes rose in every financial services sector except one. (Finance houses reported business volumes unchanged compared with the previous quarter).
Building societies saw the strongest growth followed by life insurers and securities traders.
But only life insurers expect strong business growth over the next three months. The only other sector expecting any growth is insurance brokers. The sharpest falls in business are expected by fund managers followed by building societies and finance houses.
As business volumes grew rapidly, profitability rose at its fastest rate since September 2000. Total costs rose for the third quarter in a row, though more slowly than over the previous two surveys, but the increased business meant average costs per transaction fell again.
Over the next three months companies expectations of flat incomes and declines in business volumes will be offset by average costs falling further. As a result profitability is expected to continue to grow but much more slowly than over the last three months.
The value of business done over the internet steadily increased and at a rate similar to the last three quarters. It is expected to increase at the same rate over the next three months. The proportion of companies saying more than 30 per cent of customers used web-based services rose to 12 per cent from three per cent in March.
The biggest barrier to the growth of e-business was again customers preferring other routes. Companies had expected that to start to decline in importance but it was mentioned by almost the same number of respondents as in the previous
survey. Customers not knowing how to use websites for transactions was the second most significant barrier. These are expected to go on being the most important barriers to e-business over the year ahead.
