The final quarter of 2023 has seen a downturn in business volumes within the financial services sector, the first since June 2020, as per the recent CBI Financial Services Survey.
The quarterly review, conducted in the latter part of 2023, also signals that optimism and profitability have plateaued, with expectations that profitability may decline in the coming quarter.
Despite the contraction in volumes, headcount growth saw an upswing over the quarter and is anticipated to continue its rapid pace shortly.
Investment intentions presented a varied landscape, with anticipated increases in IT and vehicles, plant & machinery investment, counterbalanced by a reduction in land & buildings capital expenditure.
Notably, the survey marked the first time since December 2014 that financial services firms are looking to boost investment in vehicles, plant & machinery.
Key survey findings include a marked decrease in business volumes, unchanged optimism, a slight decline in average spreads, and stable non-performing loan values, with the potential for marginal growth.
Profitability remained flat but is expected to fall in the next quarter. Headcount growth was strong, and while it’s expected to slow, it should remain robust.
Investment in IT and physical assets is predicted to rise over the next year, while expenditure on property is likely to be curtailed. Uncertainty regarding demand was the predominant concern impacting investment, although the concern over the cost of finance has notably lessened from the previous quarter.
Louise Hellem, CBI chief economist, said: “With business volumes falling and both sentiment and profitability stagnating, 2023 ended on a flat note for financial services firms. However, it is encouraging to see that many businesses are still looking to grow their workforce and increase investment going forward.
“With the Chancellor having answered the call to make full expensing a permanent feature of the UK’s tax regime, it’s pleasing to see greater confidence among prospective investors in these areas.
“At the Spring Budget, the Government should provide an update on the green finance strategy so that the financial services sector can continue to play its part on the road to net zero.”
