CBI says optimism in financial services sector at four-year high

Optimism in the City of London has hit its highest level since the peak in share prices four years ago thanks to a return of private investors, according to a survey.

The rise in confidence among financial services companies was led by banks, finance houses and securities traders, according to a report yesterday by the Confederation of British Industry and the accountants PricewaterhouseCoopers (PwC). Companies expect to recruit staff for the first time in two years, meaning the job shedding of the last six months might be coming to an end. The CBI said its survey, the second upbeat quarterly report in a row, suggested the sector had embarked on a "broad-based recovery".

John Hitchins, the UK banking leader at PwC, said: "This shows an encouraging rise in 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."

The survey showed 44 per cent of companies were more optimistic than three months ago while 7 per cent were less. The balance of plus 37 per cent was the highest level since June 1999.

The CBI said the recent rise in the stock market, which has jumped by almost a third since hitting a trough in March, was a key factor behind the return to optimism. Ian McCafferty, its chief economist, said: "The industry is going into winter this year much more optimistically than it did in 2002." Hopes of an upturn in financial services will be a boon for the Treasury, which is relying on a swift return to high levels of receipts from City-related activities for its optimistic forecasts for the public finances.

Meanwhile, the Recruitment and Employment Confederation (REC) warned growing levels of skills shortages would drive up pay rates over the coming months. It said demand for permanent and temporary staff rose last month at the fastest rate since February 2001.

Brett Walsh, the head of UK human capital at Deloitte & Touche, which sponsored the survey, said: "With the war for talent clearly picking up, firms are already finding pockets of skill shortages which, if sustained, will add to recruitment difficulties and exert further upward pressure on wages."