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CBI reports booming confidence in the City

The City is more buoyant than at any time since 1989, the peak of the last boom, providing further evidence of a bonanza last year among securities houses and other financial services firms.

The Confederation of British Industry (CBI) and Coopers & Lybrand survey of financial services firms showed confidence in the last quarter of 1996 rose at its fastest rate since December 1989, when the survey began.

Securities firms said the shortage of managerial and supervisory staff had risen to its highest level since the survey began, and they expect to increase employee numbers only modestly over the next three months. These expected shortages could partially explain reports of soaring salaries and bonuses.

The survey also showed that profitability among financial services firms rose at its fastest rate since September 1994, although firms expect a slower rate of increase in profits in the first quarter of this year.

"Strong growth in the financial services mirrors the pick-up in the overall economy, with firms expecting further but less pronounced increases over the coming months," said Sudhir Junankar, associate director of economic analysis at the CBI.

"What is interesting is that it doesn't suggest an unsustainable boom," Mr Junankar added.

The volume of business rose more quickly than expected and is at its strongest rate since the survey began. With the exception of securities traders, firms expected further rises in the volume of business over the coming three months.

The survey covers the activities of securities, banking, finance houses, building societies and the insurance industry and shows they will continue to invest strongly in information technology over coming years.

"The buoyancy in the financial sector, which is even stronger than expected last quarter, is in our experience making companies much more aware of the need to focus recruitment to secure high quality people and of the vital importance of well-targeted IT investment," said Pat Newberry, partner at Coopers & Lybrand.

The survey also highlights discrepancies across the sector. Among securities traders, business confidence rose for the first time in three surveys as result of the sharp pick-up in the value and volume of business over the three months.

At banks, business confidence recorded the sharpest rate of increase since 1989, with the level of business reaching well above normal after being below normal for most of the past seven years.

In contrast, business confidence among building societies rose more moderately than at any time since 1995.

The profitability of securities firms rose during the period, defying their expectations the previous quarter of a marked decline. While banks saw profitability rise at its sharpest rate since September 1994, they expect a marked slowdown in growth of profitability over the coming three months.