Financial services activity held relatively firm in Q3 of 2023, despite some softening from a buoyant second quarter. Optimism and business volumes growth were quick in the three months to September, although to a lesser extent than the previous quarter, according to the latest CBI Financial Services Survey.
The quarterly survey, found that Financial Services firms expect volumes growth to pick up considerably in the three months ahead. Employment growth, which slowed from last quarter’s 16-year high, is set to decelerate further in the coming quarter.
The research also found that optimism softened in September (weighted balance of +20% from +30% in June; long-run average of +3%).
Business volumes growth was quick in the quarter to September, despite slowing from last quarter (+27% from +42% in June; long-run average of +13%). FS firms expect volumes to increase at a faster pace next quarter (+41%).Average spreads increased slightly in the three months to September (+5% from 0% in June). Spreads are expected to be broadly flat next quarter (-3%).
The value of non-performing loans grew modestly in the quarter to September (+8% from 0% in June) but is anticipated to decline marginally next quarter (-5%). Profitability growth decelerated in the quarter to September (+13% from +41% in June) but is expected to speed up again next quarter (+38%).
Employment expanded at a robust pace in the quarter to September (+34%), albeit at a slower pace than last quarter’s increase (+52%, fastest since December 2006). Firms expect headcount growth to ease further next quarter (+23%). Firms expect to increase investment in IT over the next 12 months (compared to the last 12). Capital expenditures on land & buildings and vehicles, plant & machinery are anticipated to be broadly unchanged.
Uncertainty about demand was the most commonly cited factor likely to limit investment in the next 12 months (47%). The share of firms citing cost of finance (28%) as a potential limiting factor rose to its highest since December 2014.
Louise Hellem, CBI Chief Economist, said “It’s great to see financial services firms reporting another positive quarter, with optimism and volumes growth both firm, and activity expected to pick up further in the months ahead. A critically important sector to the UK economy, financial services also serves as a key catalyst and backer for a wealth of business activity across the country.”
“The Government should look to build on this positive momentum by maximising financial services regulation as a lever for broader economic growth in the Autumn Statement. By shifting the focus of regulation towards delivering better outcomes, the Chancellor can ensure the financial services sector enables critical transitions in the economy, like Net Zero and tech adaption, through improved access to and availability of finance.”
Sara de la Torre, Head of Banking and Financial Services at Dun & Bradstreet said “There’s been a clear decline in financial services activity in recent quarters because of rising living costs and ongoing inflation, reflecting the underlying uncertainty that the global economy is currently experiencing. And while monetary tightening may have helped control inflation, it has also raised the prospect of an economic slowdown and stress on business balance sheets. This is something we’re monitoring closely and anticipate to improve in the coming quarters as confidence returns.”
“When advanced economies encounter challenges, other emerging economies present both risk and opportunities. In fact, the global economy has not fared as poorly as feared, with most businesses anticipating a 2% to 6% increase in investment levels across technology, real estate, product development, and sustainability initiatives, providing hope that economic conditions will continue to improve. To capitalise on the changing environment, financial institutions are expanding markets, achieving strategic collaborations and leveraging technology driven data insights to make decisions and ensure resilient growth.”