City pessimism sinks to 2008 financial crisis levels

The mood in the City of London is deteriorated at the sharpest pace since the financial crisis a decade ago, the Confederation of British Industry has revealed.

Only around 10% of firms in the financial services sector said they were more optimistic about the overall business situation in the sector compared with three months ago, the quarterly report from the CBI and PwC found, with 53% of firms less optimistic.

The balance of -43% compares with -24% in the previous quarter and this fall is the sharpest since 2008, the CBI said, with expectations for overall business volumes for the next quarter are the weakest since September that year.

Optimism has weakened during 12 of the past 13 quarters and business volumes fell this quarter for a second consecutive time at the fastest rate since September 2012.

Rain Newton-Smith, the CBI's chief economist, said: “The alarm bells ringing at the state of optimism in the financial services sector have now reached a deafening level. Not only has it plummeted at the fastest rate since the depths of the financial crisis, it has been falling or flat since the EU referendum. Additionally, business volumes and employment have fallen over the last quarter.

“Brexit is now a national emergency. No-deal has to be clearly ruled out, then MPs must finally compromise and deliver a solution that protects jobs, livelihoods and communities across the UK. It is in absolutely nobody’s interest for the uncertainty to drag on, and continually chip away at our economy and financial services sector.”

The survey, carried out by PwC with 84 firms between 14 February and 7 March, found the greatest drag is being experienced in the investment management sector, while only the insurance brokers sector reported a robust growth this quarter.

Employment also fell across financial services with the hardest decline being in the banking sector. Nevertheless, employment is expected to recover in the coming quarters.

Profits in the sector as a whole saw their strongest growth in a year, driven by the banking and insurance sector. Profitability is expected to pick-up further over the three months ahead.

Andrew Kail, head of financial services at PwC, said: “Companies are ramping up spending on training, technology and marketing, which suggests among other things, more workforce automation.

“However, it remains to be seen whether our FS businesses will retain their current global footprint as political negotiations play out. Clarity, certainty and communication are vital if the UK is to protect its position as the leading financial centre.”