Financial services firms pessimistic

Business volumes, income and profitability in the financial services sector will all fall over the coming three months, according to the latest survey of sentiment by the CBI. However, looking further ahead, firms are taking a more optimistic stance, maintaining their plans for investment and recruitment.

The three months to the beginning of September were more favourable to the sector than firms had expected, with 40 per cent of respondents reporting that business volumes had grown, and 17 per cent saying they had decreased. But in the quarter ahead, a net 11 per cent of firms expect overall business volumes to fall – the first negative expectation in over three years, and the weakest since June 1991. A balance of 14 per cent of firms expect a decline in profitability over the next three months, the bleakest outlook since September 1990.

The survey, sponsored by the CBI and conducted by PricewaterhouseCoopers between 22 August and 5 September, covered 89 businesses. It thus covered the initial phases of the credit squeeze, but not the rescue of Northern Rock.

Ian McCafferty, CBI chief economic adviser, said: "The majority of firms have become much more pessimistic, and predict that the credit crunch will put a squeeze on profitability. They are however sticking with their plans to hire more staff and increase investment in training, IT and marketing, which suggests they anticipate an end to the current turbulence, and don't foresee major long-term damage to the sector."

The CBI added that overall the credit squeeze had not become a "material" problem for members, though capital for acquisitions may be "more constrained", said Mr McCafferty. He pointed to the reduction in Libor rates since their peak on 11 September as being a hopeful development, with the CBI seeing no case for a cut in the Bank of England's base rate.