Surge in financial services' volumes and profits

Business volumes and profits among the UK's financial services firms surged in the three months to December, according to the latest 'Financial Services Survey' from the Confederation of British Industry (CBI) and PwC.

City of London skyline growing through the clouds landscape photo

David Sapsted

17 January 2022

Responses from more than 100 firms in the sector showed that business volumes grew at their fastest pace since June 2017, while profitability grew at a rate unseen since December 2015 and represented the third successive quarter last year of strong growth.While the upward trend in profits is expected to ease in the current quarter, business volumes are predicted to at least match their most recent growth.

Related reading from Relocate Global

Optimism threatened by risks

However, optimism in future growth has eased somewhat, though remains above the long-term average. Additionally, the size of the sector's workforce remained unchanged for the second quarter in a row but is expected to increase in this quarter.The CBI added: "The outlook for investment over the coming year continues to be mixed, with anticipated growth in IT capital expenditures being offset by a deterioration in investment intentions for land and buildings, and for vehicles, plant and machinery."The main factor cited as a likely constraint on investment this year was uncertainty about demand (33%) and labour shortages (31%).

IT investment grows

Rain Newton-Smith, Chief Economist at the CBI, said: “While volumes and profitability growth across the financial services sector remain buoyant, the softening in optimism is something to watch closely, due to increased Covid-19 uncertainty clouding the near-term economic outlook. “This uncertainty may be weighing on investment intentions in physical assets, such as buildings. Although IT spending – so crucial in allowing firms to innovate and operate remotely during the pandemic – continues to be a bright spot."Unleashing business investment is key to powering the UK’s economic recovery, and it will be a cause for concern if firms move back from a growth mindset to focusing on survival."

Embracing change

Isabelle Jenkins, Head of Financial Services at PwC UK, added that, in addition to the pandemic, optimism was probably being affected by "a destablising cocktail" that included higher inflation, geopolitical tensions and cyber security concerns."However," she added, "the financial services sector has proved its resilience in the face of increasing change, which will likely continue over the next quarter“Firms should, of course, keep an eye on the underlying trends coming their way, but also ensure that key priorities, such as upskilling staff, embracing tech and enhancing customer interaction, remain high on the to-do list.”The survey also asked firms about their use of technology. On technology investment, 45% said they were in the transition phase of realising the benefits of upgrading IT and tech, while 17% were at the implementation stage and a third were at the benefits realisation stage."In terms of engagement with the tech sector, strategies are being based around using emerging fintechs and Big Tech firms as active partners and established fintechs as vendors," said the CBI.