‘Fastest fall in banking volumes for 28 years’ as Brexit looms

Optimism in the financial services sector has fallen at its fastest pace since the financial crisis, with banks feeling the worst pain according to a survey of businesses.

The latest quarterly snapshot of sentiment in the CBI/PwC study highlighted the steepest decline in banking volumes since the downturn of 1991.

The report covers the third quarter of the year – a three month period that will determine whether the UK economy has slipped into recession following a 0.2% dip in output between April and June.

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While economists widely expect such an outcome to have been narrowly avoided, the CBI has consistently pointed to a Brexit drag on the economy as firms await clarity on the drawn-out process.

Its chief economist said on Tuesday that the results of its survey clearly showed that the “threat of a ‘no deal’ Brexit is hitting confidence”.

Financial services, which makes up 7% of UK gross domestic product, covers sectors such as banking and insurance.

The City of London is home to many global companies and its position as a leading financial centre has faced searching questions since the UK voted to leave the EU in 2016.

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That is because companies have been anxious to ensure they could maintain access to EU markets after Brexit.

However, predictions of a jobs exodus have failed to materialise.

It should also be noted that the EU divorce is not the only challenge facing financial services.

Demand has also taken a hit in the global economy because of the effects of the escalating US-China trade war.

Bank profitability, for example, has faced pressure from weak trading volumes in such volatile times and from persistently low interest rates since the financial crash.

Stiff domestic mortgage competition has proved a drag on profit performance this year.

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The CBI report, which took in responses from 83 companies, suggested demand in the UK economy was enduring a sharper slowdown as the latest Brexit deadline drew nearer.

It said of the third quarter findings: “The decline in financial services sentiment was broad-based across sectors except for general insurance.

“Meanwhile overall business volumes declined in the three months to September, after volumes stabilised in the previous quarter.

“The decline was primarily driven by the banking sector, which witnessed the fastest drop in volumes since March 1991.

“Volumes also declined for finance houses and were flat for building societies,” the study reported.

There were some brighter spots which included employment across financial services growing at its fastest pace in over a year.

Rain Newton-Smith, the CBI’s chief economist, said of the figures: “It’s clear something has to change.

“The sector is the jewel in the crown of the UK’s world-leading services industry.

“While it’s encouraging that investment plans have improved, the threat of a ‘no deal’ Brexit is hitting confidence.

“The government cannot ignore the voice of this bellwether of the domestic economy and one of the UK’s most important globally competitive sectors.

“No ifs, no buts, the government must heed the call to avoid a ‘no deal’ Brexit, and secure an ambitious deal with our largest trading partner.”

Andrew Kail, head of financial services at PwC, added: “The deep concerns across the financial services industry, driven by the UK’s unresolved political position, cannot be downplayed.

“As sentiment has taken a further slump this quarter, we’ve observed a drop-off in plans to launch new products and services as firms batten down the hatches in expectation of a turbulent few months.”