Numbers employed in the financial services sector fell at the fastest pace for 17 years in the three months to December, according to the latest CBI/PwC survey.
With a worse-than-expected balance of -48%, the number of people employed in the sector plunged at the sharpest rate since March 1993. In addition, staff turnover was at the highest since December 2006 when it was first monitored.
In a further sign the sector is struggling, profitability grew at the slowest pace for 18 months.
But despite the weak employment and profitability figures, activity in the financial services sector grew strongly for the second quarter in a row. Of 86 respondents asked how their business volumes fared during the quarter, 50% said volumes increased whilst 23% said they fell.
The resulting balance of +27% is in line with firms' expectation (+24%), and just below last quarter's balance of +28% - the fastest since June 2007. However, a slower rate of growth in volumes is expected in the next three months of +15%.
Business volumes grew for all sub-sectors of the industry during the quarter, apart from banking where volumes were flat.
Finance houses saw growth in business volumes and profitability ease after much stronger increases over the previous two quarters, but some pick-up in both is expected for the next three months.
Building societies saw profitability rise strongly for the second consecutive quarter, driven by growth in business volumes and income values. A further increase in profits is predicted for the next three months.
In the life insurance sector, both business volumes and profitability increased for the fourth consecutive quarter, the latter also underpinned by a sharp fall in costs.
However, optimism among life insurers fell for the first time since March 2009, possibly linked to a sharp fall in income from fees & commissions and a lack of growth in net interest/trading income.
While general insurers reported the fastest growth in business in five quarters, profitability overall fell compared to the previous quarter due to a sharp fall in net interest, investment and trading income and flat spreads.
The investment management sector, meanwhile, saw a rise in business volumes and a robust increase in fee, commission & premium income, despite an increase in average costs. This saw profitability grow strongly for the sixth consecutive quarter. However, plans for capital spending in the year ahead have generally weakened, suggests the survey.
"Activity in the financial services sector grew strongly over the second half of 2010," says CBI director-general designate John Cridland. "But firms see growth slowing over the coming three months, and expect another fairly moderate increase in profitability.
"Numbers employed have fallen significantly and investment plans have weakened since September. This probably reflects renewed cost control given little growth in incomes and slower growth in profitability."
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