City success of 2011 fades on euro crisis

Tim Wallace
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FINANCIAL services firms experienced an unexpected acceleration in business volumes in the final three months of 2011, but remain pessimistic about future conditions, according to the Confederation of British Industry’s (CBI) survey of the sector, published today.

Business activity rose for the seventh consecutive quarter, while incomes rose for the whole year.

However employment levels declined and, thanks to the ongoing Eurozone crisis, marketing spending is set to fall.

The CBI found a net balance of 29 per cent experienced growing business volumes in the fourth quarter, up from 10 per cent in the previous quarter. The strong growth defied expectations previously that a net balance of just five per cent would grow.

A net balance of 14 per cent experienced profitability growth, barely changed from 16 per cent in the previous quarter.

However, volumes growth is expected to slow with a net balance of 19 per cent predicting expansion, and a balance of four per cent expecting profitability to decline.

Business sentiment was already low with a net balance of 20 per cent feeling pessimistic – a score which worsened again to 24 per cent.

Such pessimism is hitting spending plans, with net balances of 10 per cent cutting back on marketing budgets and 29 per cent slashing capital expenditure on land and buildings.

Uncertainty over demand and business prospects and expected low returns on proposed investments are the biggest reasons for such cuts.

The gloomy outlook also hit jobs – a net balance of 45 per cent of banks and 17 per cent of insurers cut jobs.

“Banks have also shown a marked acceptance that there will be increased competition,” said Kevin Burrows from PwC.

“Regulatory changes remain high up the agenda and will absorb significant management time, and spend on this will be very high throughout the year. Further job losses across the sector seem inevitable as banks seek to manage their cost base.”

However, building societies prospered, with net balances of 48 per cent increasing their work forces.