Brexit brings dark clouds to financial services, but there are some patches of sunshine ahead

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The financial services sector is expected to find itself squeezed over the next couple of years (Source: Getty)

June's Brexit vote may bring doom and gloom to the economy and, by extension, the financial services sector, according to research out today.

EY's ITEM Club outlook for financial services has predicted lending to businesses will fall by nearly two per cent in 2017 and a further one per cent in 2018, thanks to a bleaker economic outlook following 23 June vote.

Mortgages are also expected to become less popular, with annual growth in lending shrinking to less than one per cent, down from three per cent in 2014-15.

The upshot of subdued lending is that financial performance across the industry is expected to slump, with banking industry assets predicted to decline next year and carry on sliding until 2019. Meanwhile, insurance industry earnings are expected to slump to £8.9bn, their lowest level since 2012.

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"We had hoped 2016 would be the year that total lending recovered to pre-crisis levels, but with the revised economic outlook this looks increasingly unlikely," said Omar Ali, UK financial services managing partner at EY. "While banks are still willing to lend, there is a strong sense of 'wait and see' from business and consumers as they await details of what Brexit will look like in reality."

Although bleak, Ali stressed the figures should not be "blown out of proportion", adding: "The industry is in a good place to see through this 'holding pattern' period."

Meanwhile, the latest figures from the Institute of Chartered Accountants in England and Wales (ICAEW) showed business confidence is beginning to rebound after the Brexit vote.

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The group's quarterly business confidence monitor has found, while confidence remains substantially diminished after the EU referendum, there are "modest" signs of some recovery.

The ICAEW said businesses had responded favourably to the rapid establishment of a new government under Theresa May, in particular.

Meanwhile, figures out today from the Association of Professional Staffing Companies (APSCo) show recruitment stayed stable in the month of the referendum itself, with permanent vacancies growing one per cent compared with June last year.

In particular, hiring in the financial services sector remained strong, with permanent vacancies up eight per cent and contract vacancies rocketing 26 per cent.

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"While we expected data collected before and just after the EU Referendum to show that the professional jobs market was subdued due to uncertainties around Brexit, the relative strength in demand for permanent hires is somewhat surprising," said Ann Swain, Chief Executive of APSCo.

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