January 11, 2010 |
|A tentative recovery in Britain’s financial services sector will fizzle out soon, posing fresh questions about a revival in the wider economy, according to the CBI.|
In its latest quarterly survey, which is published today, the employers’ group says that banks, building societies, dealers and other financial institutions are at their most pessimistic since December 2008, when the UK was in the grip of a banking crisis.
Respondents to the CBI’s survey, its 81st poll of industry trends, said that trading levels and profits had increased slightly during the three months to the end of December, their second successive quarterly rise.
But the majority, a balance of 13 per cent, predicted that trading levels and profits in the first quarter this year were likely to be flat or fall.
Ian McCafferty, the CBI’s chief economic adviser, said: “The bounce in UK financial services activity over the past six months is not expected to last as we enter 2010.
“There has been a relatively subdued growth in both business volumes and values during the survey period, but there are expectations that there will be a flattening out in both volumes and values in the next three months.”
The value of fees, commissions and, for insurers, premium income rose during the last three months of the year as investment markets recovered, but still by less than expected, the CBI found in its survey.
Moreover, expectations among banks and dealers for interest and trading income over the coming three months are at their lowest level since the CBI began its survey 20 years ago, with a balance of minus 54 per cent, it found. The balance in the CBI’s survey is the difference between the percentage of respondents reporting rises and those reporting falls.
The survey also found that, despite being more optimistic about the wider business environment — building societies turned optimistic for the first time since March 2007 — companies in the financial sector will continue to cut operating costs and push up prices in an effort to adjust to the continued economic downturn.
About 5,000 jobs were lost across the financial sector during the fourth quarter, as lenders, dealers and other institutions moved to cut costs, the CBI estimates.
Moroever, it believes that a further 5,000 jobs will go by the end of March, taking the jobs cull since the onset of the credit crunch in late 2007 to 71,000. The financial sector employs about one million staff across the UK.
Worries about the short-term outlook are at their most pronounced among the banks, according to John Hitchins, UK banking leader at PricewaterhouseCoopers, the consultancy that carries out the survey in conjunction with the CBI.
Business volumes for banks, which have been fiercely criticised for failing to lend during the recession, staged a surprise increase during the fourth quarter, the first rise since September 2007. However, Mr Hitchins said that lenders were expecting demand for loans to dry up as cash-strapped households rein in finances and, for some, refuse to pay higher borrowing charges.
“They [the banks] are not confident that the growth they’ve seen will be sustained. All sectors are expecting a negative decline but the biggest one is retail,” he said.
The head of the Financial Stability Board — the global financial watchdog, which seeks to promote more effective regulation — warned at the weekend that the recent revival in markets was not as strong as it appeared. Mario Draghi, who is also governor of the Bank of Italy, said there was a danger that bankers were beginning to take on too much risk again because of over-optimism.