The financial services industry grew at the fastest rate since Northern Rock collapsed in the last three months - but the "modest pick-up" in activity was lower than expected.
Although the sector saw its fourth consecutive quarter of improving profitability, the latest CBI PwC survey suggests firms expect activity to level off over the coming three months as concerns about regulation and red-tape mount.
Asked how business volumes fared in the three months to June, the balance of 9% was far weaker than expected.
However, a balance of 63% expect business volumes to rise over the next three months - the most positive outlook since 1993. As such, firms are planning to expand staff numbers. Businesses expect staff numbers to increase next quarter - which will mark the first increase since December 2007.
In the investment management sector, profitability grew at the fastest rate since June 2006, beating expectations of a marginal contraction. Business volumes increased only slightly, though, with optimism broadly unchanged.
However, a sharp contraction in the sector is expected over the coming quarter in line with a fall in anticipated income values and hike in costs.
Business volumes increased rapidly in the finance houses sector during the quarter, propped up by strong growth among financial institutions and individuals.
In the life insurance sector, volumes of business increased rapidly for the second consecutive quarter. Overall volumes are expected to expand at a similar rate in the next three months. Profitability rose strongly for a second successive quarter.
For general insurance, profitability fell for a third consecutive quarter with another slump expected in the next quarter. A marginal increase in business volumes is expected, however.
CBI deputy director general John Cridland notes the survey was carried out when financial markets were feeling the "intense strain" of euro sovereign debt fears.
"A high proportion of firms are worried about the impact of prospective regulation on their business, and many remain concerned that red tape will hamper growth prospects in the year ahead," he says. "Firms have also become more worried about increased competition within the sector, particularly from new entrants and from overseas."
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