Business confidence amongst financial services companies has fallen more sharply than at any time for three years and business levels are well below normal. Those are the main findings of the latest quarterly survey of firms in the sector published today by the CBI and PricewaterhouseCoopers.
Seven per cent of respondents said they were more optimistic about the overall business situation than three months ago while 47 per cent said they were less. The balance of minus 40 compares with plus three in June 2001 and is the lowest since September 1998.
The level of business is further below normal than in any survey since December 1997. It was below normal according to 35 per cent of companies while 19 per cent said it was above. The balance of minus 16 per cent compares with minus four in June.
Business volumes rose slightly over the past three months. In June the balance was minus 2 per cent, in this survey it is plus four. But compared with six months ago, when the balance was plus 26 per cent, growth in business volumes is still much reduced.
And, while they did rise, business volumes grew much less over the last three months than had been expected. The actual balance of plus four per cent compares with the plus 20 that was expected. There are, though, pronounced differences between sectors. Life insurers, building societies, insurance brokers and banks reported the strongest rises while securities traders and fund managers saw the biggest falls.
A balance of minus two indicates business volumes will be broadly stable in the final quarter of 2001.That is the weakest expectation since December 1991. Again the level of demand is the most likely constraint on business over the next year. The proportion of firms citing that as a factor rose from 77 per cent in the last survey to 81 per cent in this. That is the highest level since June 1996. Domestic competition remains the second most frequently mentioned limiting factor.
Over the last three months overall employment in financial services fell for the first time in almost five years, despite expectations of a rise. Securities traders, banks and fund managers have suffered the biggest falls. That contrasts with general insurers, building societies and insurance brokers, which reported significant rises. In financial services as a whole, more jobs are expected to be lost over the coming three months and at a faster rate.
John Hitchins, Financial Services Partner at PricewaterhouseCoopers said: “With business confidence at a three year low and worries that consumer confidence may be eroded in the wake of the terrorist strikes on America, the UK financial services industry is distinctly nervous.
“A number of sectors, particularly banks, building societies and insurers actually enjoyed strong performances in the last quarter, but the pessimism about the future is shared across the industry and can only have been worsened by recent events in the USA.”
In the previous survey overall profitability fell for the first time in six years but during the last three months it remained broadly unchanged. A slight fall is expected in the final quarter of 2001.
Sudhir Junankar, CBI Associate Director of Economic Analysis, said: “This survey shows the sharp slowdown in the world economy had left business confidence suffering even before the attacks on the USA. It is significant that financial services companies are markedly more concerned about future demand than they have been at any time in the last five years.
“The uncertainty in financial markets that followed September 11th may have had some immediate impact on sentiment but the longer-term effects are more difficult to gauge.”
Business on the internet is growing more slowly than firms were expecting in the last two quarterly surveys but there is evidence that they are adjusting to that. A balance of 29 per cent of firms said the total value of their internet business had increased. That compares with 39 per cent in March and 41 per cent in June. Just five per cent of those that reported an increase said the increase had been faster than expected, while 21 per cent said it was slower. The balance of minus 16 compares with minus 31 per cent in June.
More financial services firms are saying that the biggest barrier to growth of their e-business is a lack of understanding by consumers and suppliers. In June that was mentioned by 56 per cent of respondents. In this survey the figure is 62 per cent. The speed at which the internet works has replaced fears about internet security as the second most cited barrier. Lack of understanding is expected to continue to be the main barrier over the next three months
Firms were asked how they are developing their e-business. Seventy-eight per cent said they were putting current business activities online which is down slightly from 83 per cent in June. Fewer firms said they had launched an online brand, Twenty-two per cent in this survey compares with 28 per cent in June, and eight per cent are planning to, compared with 10 per cent in the last survey.