Growth in financial sector shows continued progress

Britain's financial sector is continuing its bounce-back from the recent downturn, despite widespread concerns about the rest of the country's economy, the Confederation of British Industry (CBI) will say today.

The volume of business in the financial-services sector grew for the eighth consecutive three-month period, and at well above the average pace during the first quarter of the year, according to the CBI/PricewaterhouseCoopers Financial Services Survey. The data will also show the first rise in optimism among financial firms in a year, with a positive rating of 32 per cent of respondents feeling upbeat about prospects. There has also been an unexpected increase in employment in the sector, showing a balance of +19 per cent.

Some 44 per cent of firms saw volumes rise in the quarter to March, while 21 per cent reported a fall. The resulting positive balance of 23 per cent is well above the long-run average of +12 per cent.

Over the next three months, companies also expect growth to accelerate. Growing income more than offset the impact of sharply rising costs.

The growth meant firms' profitability rose more rapidly than in the previous three quarters. The unexpected rise in employment is expected by a net positive of 20 per cent of respondents to continue over the next three months, and many firms have resumed investment in IT and marketing.

Despite this, uncertainties remain and companies surveyed have continued to cite concerns about demand (+55 per cent) and inadequate returns (+46 per cent) as factors likely to limit capital spending over the next year.

The number of firms citing the shortage of labour as a significant constraint on expansion increased.

Ian McCafferty, the CBI's chief economic adviser, said: "Financial-services sales volumes and income continued to rise this quarter.

"Optimism levels and business-investment intentions have also improved, in contrast to the last quarter as some of the worst risks around the euro-area crisis have eased."