Optimism within the financial services sector increased for the first time in three quarters as business volumes showed signs of stabilising following the initial shock of the coronavirus crisis, a new survey showed.
Sentiment among finance firms rose nine per cent in the three months to the end of September, according to the Confederation of British Industry (CBI) and PwC’s latest industry survey.
Business volumes were largely unchanged in the period, rising one per cent following a massive 52 per cent drop in the previous quarter. While the majority of sub-sectors reported a growth in volumes, this was offset by declines in general and life insurance.
“While it is reassuring to see business volumes begin to stabilise in a sector so vital for the UK’s recovery, financial services isn’t out of the woods just yet,” said CBI chief economist Rain Newton-Smith.
Employment within the financial services sector continued to fall in the quarter to September, the survey showed, albeit at a slower pace. Employment fell 21 per cent during the period covered by the survey, compared to a 37 per cent decline in the previous three months.
Firms are planning to cut headcounts once again in the next quarter, the report said, but the rate of cuts is expected to slow once again to a 17 per cent drop.
“Plans to cut jobs and investment point to a period of adjustment as firms come to terms with the new normal brought about by the pandemic,” said Newton-Smith.
“Covid also appears to be driving a longer-term appraisal of business models, driving disruption and new ways of working,” she continued.
As well as the coronavirus pandemic, financial services firms cited macroeconomic developments as the biggest sources of disruption to their businesses.
Structural challenges such as regulation, changing customer behaviours, and the acceleration of digital technology were also cited as sources of disruption by over half of the survey’s 133 respondents.
Andrew Kail, PwC’s head of financial services, said firms need to “reconfigure their strategy and focus on changing customer needs”.
“Digital transformation and the talent to support this are critical,” he continued. “Some organisations have already embraced this while others need to find ways to speed up their transformation.”