The City loses confidence despite enjoying strongest second quarter in years

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Britain’s financial services industry became less confident in the second quarter despite enjoying one of the strongest periods in years, a new survey has revealed.

Optimism stalled in the second quarter as City firms warily eye the UK economy, according to the survey by the Confederation of British Industry (CBI) and accountants PwC, with the balance of firms reporting they were more optimistic than three months ago falling from four per cent to a negative reading of 10 per cent.

The marked pessimistic turn in the City came despite measures of volume and income both showing a strong second quarter for 2017.

The balance of firms across the City reporting bigger business volumes for the last quarter rose to its highest level since December 2014, with a positive balance of 44 per cent saying volumes improved.

Read more: Top British finance bosses' concerns grow over economic storm clouds

Meanwhile insurance and investment firms both enjoyed a healthy second quarter. The value of income from fees, commissions and premia and the value of income from interest, investment or trading rose both rose at the fastest pace since March 2015, before the Eurozone debt crisis flared up.

However, signals from the City have been mixed in recent weeks, with benign current conditions and strong survey data overshadowed by fears over a slowing economy.

This is reflected in firms' predictions for business in the next quarter, with markedly smaller proportions of firms predicting faster business volume or income growth.

Rain Newton-Smith, CBI chief economist, said: “There are mixed messages coming from the sector. Whilst business activity is holding up strongly, optimism took another dive, which likely reflected a mix of Brexit uncertainty and concerns that financial market conditions could tighten.”

Investors in British companies have been warily eyeing economic data after a sharp slowdown in UK economic growth in the first quarter of 2017 to only 0.2 per cent.

John Cronin, head of UK banks research at brokers Goodbody, said: "There has been a sell-off in recent months which, in my view, has been chiefly driven by macroeconomic-related angst."

However, profitability in the overall financial services sector is still expected to increase in the next three months, albeit at a slower rate.

Andrew Kail, head of financial services at PwC, said: “Currently the financial services sector is performing well in both business volume terms and underlying profitability. However, another quarter of falling optimism points to an industry harbouring concerns about the future.”

Read more: Employer confidence stable as Brexit negotiations start

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