The financial services industry is bracing itself for a tough period on the back of the credit crisis but expects a long term recovery, research suggests.
For the first time in three years, firms anticipate a decrease in business volumes in the coming quarter, with net 11% expecting a reduction, according to the latest CBI/PricewaterhouseCoopers Financial Services survey.
CBI chief economic advisor Ian McCafferty says the financial services sector expects difficulties in the months ahead.
“The majority of financial services firms have become much more pessimistic, and predict that the credit crunch will put a squeeze on business volumes, incomes and profitability.
“They are however sticking with their plans to hire more staff and increase investment in training, IT and marketing, which suggests they anticipate an end to the current turbulence, and don't foresee major long-term damage to the sector.”
However, the survey also shows that despite a sharp fall in sentiment across the board, the sector enjoyed “unexpectedly good business” to early September.
Conducted between 22 August and 5 September, the survey of 89 businesses does not take into the most recent troubles engulfing the sector and in particular the impact of the Northern Rock crisis.
In the three months to September, 40% of respondents experienced growth in business volumes, while just 17% encountered a decrease. The survey showed demand from overseas customers and private individuals were the main driving force in the period.
Over the period, life insurance sector business volumes continued to rise, although the growth rate has eased somewhat.
PwC insurance partner Andrew Kail says the value of premium income is predicted to increase, perhaps enough to offset the effects of falling commercial rates.
“Life insurers are feeling less confident than in the prior quarter which should not come as a surprise given the likely impact of recent market turmoil on retail customers,” he says.
“However, profitability is reported to have shifted upward for the first time this year, we have seen an increase in new business and a higher than usual level of activity."
As for asset management, fund managers are highly pessimistic, the report reveals. Total costs increases coupled with lower incomes resulted in the first profitability decline for a year and a half.
Pars Purewal, PwC UK investment management and real estate leader, says fund managers’ optimism has dipped, following two quarters of improving sentiment.
“Downbeat predictions for activity and income reflect concerns founded in the current financial market uncertainty,” he says.
“However, survey results show that there is no current indication that the third quarter will yield a particularly poor performance by this sector.
“In fact, retail and overseas activity is predicted to grow and profitability, although reported to have fallen during the quarter, is expected to recover despite planned expansion of cost bases and a strong focus on recruitment.”
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