Optimism in the financial services sector has turned positive after four consecutive quarters of declining sentiment, according to the CBI/PWC Financial Services Survey.
The quarterly survey of 98 firms, covering building societies, life insurers, insurance brokers investment managers, finance houses and general insurers, found 33 per cent were more optimistic about the overall business situation compared with three months ago, while 29 per cent were less optimistic.
The optimism was reflected in 34 per cent of firms seeing business volumes increase of late and 17 per cent seeing them fall, while 43 per cent reported an increase in profits and 10 per cent said they fell.
Income from net interest, investment and trading improved overall (6 per cent), with a further increase expected next quarter by 8 per cent.
The biggest increase in business was experienced by building societies and investment managers.
The return to optimism follows the financial services industry's longest period of falling sentiment since the global financial crisis of 2008.
Mark Pugh, UK asset and wealth management leader at PWC, attributed the change in sentiment in part to anticipation of future consolidation. "Scale and the ability to implement innovation quickly is driving consolidation in the sector, and we expect this to continue,” he said.
Scale and the ability to implement innovation quickly is driving consolidation in the sector, and we expect this to continue.Mark PughRain Newton-Smith, chief economist at the CBI, attributed the return to optimism as linked to stronger global growth figures, but noted that while demand in the UK economy has proven resilient, growth is likely to slow as the year goes on, amid broader uncertainty and higher inflation.
Regulation and legislation is cited as the main constraint on business expansion for asset and wealth managers in the year ahead.
Mark Dampier, head of research at Hargreaves Lansdown, said that while optimism was improving it was coming off a low base.
He said while confidence has improved clients were still cautious and he described the current equity rally as being "the most hated bull market of its time".
"Until interest rates move up you would have to ask if things are improving," he said.
"Confidence is pretty fragile and things have got a bit better, but lets not go overboard. It is not what you would expect with markets at an all time high."
In the year ahead, feedback to the CBI/PWC survey showed financial services firms expect to increase IT and marketing spending, and to cut back slightly on other forms of capital spending.
The main stated reasons for this are to increase efficiency and speed, to expand capacity and to deal with regulation.
Combatting the threat of cyber-crime is a growing imperative for financial services firms, with more than four fifths planning to invest in preventative technology and IT systems, and to test their defence and response mechanisms over the year ahead.
david.rowley@ft.com
