A robust economy has helped stabilise sentiment in the financial sector in the three months to March despite falling throughout 2016, according to a CBI/PwC financial services survey.
More than three in 10 (33 per cent) firms said they were more optimistic about the overall business situation compared with three months ago, while 29 per cent said they were less optimistic.
Earlier this month, the UK economy's growth forecast for this year was revised sharply higher by the Budget watchdog. The Office for Budget Responsibility predicts the economy to grow by two per cent, up from its previous forecast of 1.4 per cent.
Building societies, life insurers, insurance brokers and investment managers were more upbeat than in the previous quarter, while finance houses and general insurers felt less optimistic. Sentiment stablised in the banking sector following four straight quarters of decline.
Overall profitability rose significantly in the quarter to March, with 43 per cent of firms reporting that profits had increased and 10 per cent saying they fell. Three in 10 (30 per cent) of financial services firms said they had increased employment, while 19 per cent said that it had fallen.
The quarterly survey of 98 firms also found that 34 per cent of firms saw business volumes go up, while 17 per cent said they were down. Building societies and investment managers in particular reported a solid expansion of activity. However, growth in overall business volumes is expected to slow over the coming three months, suggesting firms remain cautious over the outlook.
Among the top threats facing the financial services firms were cyber crimes, with over four fifths planning to invest in preventative technology and IT systems this year.
Also, more than two thirds of businesses already have formal succession plans and leadership programmes and over half have appointed a senior executive responsible for diversity and inclusion.
Rain Newton-Smith, CBI's chief economist, said: “It’s great that financial services firms have begun the year with a spring in their step – notwithstanding Brexit uncertainty – with volumes expanding at a robust pace, profitability improving and hiring on the up.
“Underlying business in the sector is holding up well, and optimism about global markets, along with stronger global growth, is having a positive knock on effect. However, whilst demand in the wider UK economy has proven resilient, growth is likely to slow as the year goes on, amid broader uncertainty and higher inflation.
“Firms continue to keep a close eye on the challenges ahead, from concerns over labour shortages and the impact of regulation costs on business expansion. It’s reassuring to see them taking meaningful steps to address cyber-crime, as it rises up the risk register. A deeper understanding of the need for greater diversity and concrete plans to improve it will also enable better business decisions to be made.”