Recovery is gaining pace in the UK financial sector

But CBI warns that conditions remain 'challenging' for banking services firms

Britain's financial sector is continuing its bounceback from the recent downturn, despite widespread concerns about the rest of the country's economy, the 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.

Of the 95 financial firms that responded to the poll, 44 per cent 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 positive 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. This 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 while 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 highlighting 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, putting the sector's recovery on a firmer footing.

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

He added: "The unexpected rise in employment is a further encouraging sign for the sector. But with the current level of business regarded as below normal, conditions still remain challenging for financial firms."

Meanwhile, Britain's top finance directors are finally regaining some confidence as fears about a possible break-up of the euro and of a double-dip recession ease, according to a survey by Deloitte. The results, to be published today, cover the first quarter of 2012, and follow a poll of finance directors at 136 big companies including 39 in the FTSE 100 index of the biggest stockmarket listed businesses and 53 in the second tier FTSE 250.

Despite recent analysis from think-tanks such as the CEBR suggesting that Britain is already in a second recession, the Deloitte survey found that the proportion of finance chiefs expecting a "double dip" downturn fell to 30 per cent in the first three months of 2012, down from 54 per cent in December.