City gets New Year jitters as outlook dims

BANKS and securities traders expect profits to flatten in the coming quarter, indicating weak short-term expectations among City players.

Sentiment across the Square Mile is downbeat as the New Year gets underway, according to a survey by the CBI and PricewaterhouseCoopers. The report found the majority of financial services firms were concerned the booming business volumes seen in the fourth quarter of 2009 would be unsustainable and that further cost-cutting would be necessary.

A balance of 13 per cent of financial services firms said they expected falling business volumes this quarter – the most negative response since December 2008. A balance of nine per cent expected the slight uptick in business with private clients to peter out, while an overwhelming balance of 54 per cent said commission and trading income would fall.

Income values in the banking sector are forecast to drop, flattening profitability. Finance houses expect further shrinkage in business volumes, although insurance brokers and life insurers were more positive.

Ian McCafferty, chief economic adviser at the CBI, said: “The bounce in UK financial services activity over the past six months is not expected to last as we enter 2010. Firms see their business volumes falling back again, with no further improvement in profitability over the next three months.”

John Hitchins, UK banking leader at PwC, said the long-term outlook for the banking sector remained strong but the immediate-term view was “less encouraging”.

He said: “Activity in revenues are expected to decline over the coming quarter, predictions for demand remain weak and an uncertain regulatory future continues to temper the banks’ growing confidence with caution. On a positive note, the sector reports growing headcount.”