UK Financial Firms' Profits Rose Late In 2012; Outlook Mixed - CBI/PwC Survey

Tom Burroughes

21 January 2013

Financial services firms’ profits increased in the three months to December 2012 and optimism improved, despite a further fall in business volumes, the Confederation of British Industry reported.

The survey, carried out with PricewaterhouseCoopers, said that of the 94 companies that responded, some 25 per cent saw business volumes rise, and 30 per cent reported a fall. The resulting balance of -5 per cent represented the second consecutive quarterly decline and disappointed expectations of a return to moderate growth (+12 per cent).

According to Bloomberg, the report means that the UK’s financial industry will shed 43,000 jobs in six months. Banks, asset managers and other finance firms probably cut around 25,000 jobs in the last quarter of 2012 and may axe 18,000 jobs in the first three months of this year. The CBI could not be contacted by WealthBriefing at the time of going to press to confirm those numbers, which were not mentioned in the report statement today.

The CBI/PwC report said business volumes fell across all customer categories: industrial and commercial companies (-11 per cent), financial institutions (-21 per cent), private individuals (-9 per cent) and overseas customers (-19 per cent).

The number of people employed in the financial services sector fell more sharply than expected (-31 per cent compared with -9 per cent). This was the third consecutive quarterly decline and headcount is expected to fall strongly again next quarter (-25 per cent). Staff turnover was also higher than expected (+23 per cent compared with +4 per cent).

As a result, staffing constraints “picked up noticeably”, the report said.

The proportion of survey respondents citing availability of professional staff as a factor likely to limit the level of business over the next year rose to its highest level (32 per cent) since March 2006 (39 per cent). Shortage of labour was also cited by 37 per cent of respondents as likely to constrain investment over the year ahead – the highest proportion since June 2007.

The future

Looking at the year ahead, investment intentions are mixed, with marketing spend still expected to increase relative to the past year (+30 per cent - the strongest balance since March 2011; +67 per cent) and IT investment also set to rise (+11 per cent). However, investment plans for IT have been scaled back over the past year, and firms plan to spend less on land and buildings (-31 per cent) and vehicles, plant and machinery (-39 per cent) in the year ahead.

There was a significant increase in the number of firms planning to invest over the coming year to expand capacity (50 per cent compared with 15 per cent in September).

Uncertainty about demand as a constraint on planned spending fell back sharply (from 73 per cent to 36 per cent), to well below its long-run average (51 per cent).