Money (9)

The UK's financial services industry ended 2015 on a high, according to business lobby group the CBI and accountancy firm PwC, as growth in business volumes picked up more strongly than expected in final quarter.

The survey found that the net balance of firms report “above normal” business levels was up 4 points to 23%, despite the fact that the level of business with overseas customers fell below normal to the greatest extent for three years.

The quarterly survey also found that optimism within financial services rose only slightly, following more robust increases in the first half of 2015. Strong competition is bearing down on incomes, though tight cost control is helping to support growth in profitability.

Looking ahead, weaker growth in business volumes, flat income and rising costs are expected cause growth in profits to ease in the run up to March.

Meanwhile, employment prospects remain mixed, with banks reporting falling employment, compared with solid growth in headcount in the insurance and building society sectors. Overall, expenditure on training rose strongly in the three months to December.

Rain Newton-Smith, CBI Director for Economics, said: “Despite strong growth in profitability driven by easing cost pressures and increasing business volumes, the financial services industry is alive to downside risks from developments overseas. The global economic outlook remains uncertain while China rebalances, which is having knock-on effects on emerging markets, amidst continued unrest in the Middle East.

She added: “There is a great deal of uncertainty within the financial services industry over the impact of Fintech. Firms in most sectors are looking to upgrade their own platforms over the next five years rather than acquire Fintech firms. However, partnerships with Fintech firms are seen as a high priority by companies in some sectors, particularly finance houses, insurance brokers and investment managers.”

Kevin Burrowes, UK financial services leader at PwC, said: "We see the emerging trend of firms making more investment in new products. Another positive is that IT investment is moving from regulatory spend to front line systems to help overcome the rise of new competition.

“Also, it’s clear that optimism is muted across the whole sector and each sub-sector has its own challenges. Ongoing low interest rates, cost of floods claims, the continuing slump in oil prices and the domino effect of stock market volatility are responsible for the increased pessimism compared to this time last year."