Financial services firms reported slower business volumes growth in the first quarter of 2025, relative to Q4 2024, according to the latest CBI Financial Services Survey.
This comes as optimism in the sector fell again, though at a more gradual pace than in the previous quarter.
The quarterly survey, conducted between 28th February and 19th March 2025, showed that financial services firms anticipate volumes to grow at a quicker pace next quarter.
However, investment and hiring intentions were negative, with firms also expecting profits to continue falling over the next three months.
Optimism continued to fall in March, but at a slower pace than in the previous quarter (weighted balance of 8% from 28% in December).
Business volumes growth eased in the quarter to March (5%) after a considerable rate of expansion in the three months to December (32%).
Firms expect volumes growth to accelerate again in the quarter to June (29%).
Average spreads fell at a slower rate in the quarter to March (38%), relative to December (62%).
They are expected to decline more gradually over the next three months (34%).
The value of non-performing loans was flat in the quarter to March (0% from 18% in December).
Their value is anticipated to pick up at a moderate pace over the next quarter (11%).
Profitability fell at a modest pace in the quarter to March (9% from 14% in December).
Financial services firms expected a broadly similar rate of decline in profitability over the next three months (8%).
Headcount was broadly unchanged in the quarter to March (2%), following a decrease last quarter (25%).
Firms said they expect headcount to fall at a fast pace in the three months to June (34%).
In addition, uncertainty about demand was the most commonly cited factor likely to limit investment over the next 12 months (42% from 16% in December; long-run average of 48%).
Over one-third of firms reported that “other” factors were likely to limit investment (36% from 65% in December; long-run average of 8%), with comments highlighting concerns regarding regulatory burdens and the impact of Autumn Budget measures.
The share of firms citing cost of finance as a limiting factor rose noticeably above the long-run average (21% from 9% in December; long-run average of 10%).
Louise Hellem, CBI chief economist, said: “The financial services sector had a weak start to 2025, with firms reporting only slight growth in business volumes and optimism falling for a third consecutive quarter.
“Profitability was squeezed again, amid a continued decline in average spreads.
“These challenging business conditions led to negative investment intentions, with financial services firms expecting to reduce capital spending on IT for the first time since 2010.”
Hellem added: “With global trade tensions posing significant challenges for UK businesses and financial markets, as well as domestic changes from NIC hikes to minimum wage increases – financial services firms, alongside other sectors, are facing an uncertain future with the added weights of higher costs and a weaker global economic outlook.
“With the Employment Rights Bill likely to raise costs further, it is crucial that the Government considers amendments to the bill in order to address immediate business concerns, and avoid putting up barriers towards their Growth Mission.”
