At the end of Q4, optimism in the financial services sector fell at the quickest pace since September 2022, according to the latest Confederation of British Industry (CBI) Financial Services Survey.
The quarterly survey, conducted between 21st November and 9th December 2024, showed that investment intentions were mixed, with the cost implications of the Autumn Budget likely to limit investment over the next 12 months.
However, the survey also found that growth in business volumes picked up in the quarter to December, growing by 32%, after a modest increase in the three months to September at just 6%.
Average spreads fell at a survey-record pace in the quarter to December – falling by 62%, from a fall of 55% in September.
Respondents said that spreads may decline at a slightly slower rate over the next three months (-57%).
The value of non-performing loans increased in the quarter to December, growing to 18% from 16% in September – the fastest rate since March 2021.
Their value was widely expected to rise at a broadly similar pace over the next quarter.
Profitability fell at a more modest pace in the quarter to December, falling by 14% instead of 43% recorded in September.
Firms said they expected to increase IT investment in the next 12 months; however, capital expenditures on land and buildings and vehicles, plant and machinery are expected to fall.
Around two-thirds of firms reported that ‘other’ factors were likely to limit capital expenditure over the next 12 months.
Comments highlighted that companies were most concerned about the impact of substantial cost increases from the Autumn Budget on investment.
Louise Hellem, chief economist at the CBI, said: “Financial services firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years.
“These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth.
“The survey also highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.”
She continued: “With much global uncertainty, low fiscal headroom and an urgent need to inject momentum into the economy, delivering a comprehensive financial services strategy and implementing the Mansion House reforms in full is vital to achieving the UK’s growth ambitions.
“The financial services sector is a vital asset that underpins our economy and provides the stable framework firms need to invest and grow.”
