Nine in 10 City firms expect the credit crunch to last at least a further six months, the latest Financial Services Survey reveals.
The quarterly CBI and PricewaterhouseCoopers report shows industry confidence is continuing to decline, with 97% of businesses predicting there is a “good chance” credit conditions will get worse over the next six months.
At least 10,000 jobs could be lost in the sector, the CBI predicts, with 25% of respondents saying they had cut jobs over the past three months.
Business volumes fell sharply, with 47% saying they had decreased, compared to 17% reporting an increase. The -30% balance was worse than expected and followed December's 17-year low of -33%.
Sentiment among financial services firms continue to decline, with 29% reporting less business optimism than in December.
CBI chief economic adviser Ian McCafferty says it is clear the credit crunch has worsened in Q1 2008.
"While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust, so that credit markets are unlikely to return to anything like normality for some time to come,” he says,
“Even when they do, we will not see a return to the very favourable lending conditions that existed before August.
"We can expect further tough times in the financial sector, and as this feeds through into the wider economy it will inevitably be felt through slower economic growth this year and next."
The report also showed life company optimism collapsed, with business volumes, incomes, new business value and profitability all declining.
“They (life insurers) report a large fall in confidence as the continued investment and housing market uncertainties directly affect their business,” PwC UK insurance leader Andrew Kail says.
“Faced with this uncertainty the life insurers are increasingly focused on cost reduction and reductions in capital expenditure and staff costs are likely despite them reporting a need to make further investment in the area of compliance and regulation.”
Meanwhile, the fund management sector was the only area to report more optimism than in December.
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