Business leaders have blamed a “perfect storm” of Brexit uncertainty and market turbulence for the sharpest plunge in confidence among financial services firms since 2011.
The Confederation of British Industry’s snapshot of more than 100 companies, carried out in tandem with the accountancy firm PwC, found sentiment weakest among banking and investment management companies as optimism sank at the fastest rate since the peak of the eurozone debt crisis over the previous quarter.
But its comments on the impact of the EU referendum on business investment will again stoke accusations of “Project Fear” scaremongering by the CBI over the crucial 23 June vote. The survey found that just 14 per cent of firms were more optimistic about the future, with 35 per cent less optimistic – the most downbeat overall mood since December 2011. Respondents also said they were unlikely to increase jobs over the coming quarter.
“Concerns over China and a volatile start to the year for markets, alongside uncertainty about a possible Brexit, have created a perfect storm to dampen optimism in financial services,” said the CBI’s economics director, Rain Newton-Smith. “As we know from talking to CBI members, now that the referendum date has been set some investment decisions have been put on hold by some firms, though this is not widespread.”
Spending on IT remained strong but plans in other areas were being scaled back, the CBI found. Firms are winning work but profits are growing at the slowest rate in nearly two years.
Kevin Burrowes, UK financial services leader at PwC, said companies would have to play “business blackjack” and decide whether to “stick”, “twist” or “fold”. He added: “With uncertainties over the EU referendum and global economy, the next quarter will be a challenging one for the financial services sector.”
Research by the independent consultancy Oxford Economics found last week that financial services was one of the sectors most at risk from Brexit, with the biggest impact likely to be weaker foreign investment.
The CBI has incurred the wrath of the Leave campaign for pushing strongly for Britain to remain in the EU. The business lobby group says 80 per cent of its membership is in favour of remaining in the bloc.
Oxford Economics has estimated that the financial services sector would be 2.2 per cent smaller in 2030 if Britain left the EU than if it stayed in.
The CBI’s comments on the impact of the EU referendum will stoke accusations of scaremongering