Financial services success story amid the gloom

Britain's financial services industry continues to rise above the gloom of the faltering economy, the Confederation of British Industry will say today, while also warning that the sector is now growing less quickly than had been expected.

Activity at financial services firms grew over the past three months at the fastest rate since June 2007, while profitability was up for the fifth quarter in a row. Some 37 per cent of firms said business volumes rose over the past quarter, while 9 per cent said they fell. The positive balance of 28 per cent was the best figure since June 2007, though the CBI said it was disappointed, with the forecast having been for a figure as high as 63 per cent.

Such is the concern about the shortfall in expectations that the CBI said many in the City and elsewhere in financial services were now more concerned about the prospect of a slowdown in the economy than regulatory reform, previously their biggest anxiety in the wake of the credit crisis.

"Activity picked up in the financial services sector in the last three months at a pace not seen since before the credit crunch – although this growth was slower than hoped, it did help firms' profitability to rise further," said Ian McCafferty, the CBI's chief economic adviser.

"There is ongoing concern that prospective regulation may hold back business expansion in the coming year, but financial services firms have become more worried that weak levels of demand will dampen growth prospects."

As in other parts of the economy, many financial services companies say that a shortage of credit is causing them problems. However, this does seem to be easing, with the smallest number of firms for two years complaining about it and many saying that the cost of credit had come down.