Firms expect volumes to increase at an even quicker rate over the next three months.

The quarterly survey, conducted between 1 and 19 March, also showed that FS firms’ optimism increased quickly over the quarter. Headcount in the sector grew at a fast pace for a fourth consecutive quarter, and firms anticipate that headcount growth will accelerate further in the next three months.

Key findings:

Business volumes grew rapidly in the quarter to March (+36%) after having fallen last quarter (-23% in December). Firms expect volumes to increase at an even quicker rate in the next three months (+50%).

• Optimism increased at a quick rate in the quarter to March (weighted balance of +29% from -3% in December).
• Average spreads declined in the quarter to March (-19% from -4% in December) but are expected to increase next quarter (+9%).
• The value of non-performing loans increased in the quarter to March (+11% from +3% in December) but is expected to fall next quarter (-7%).
• Profitability grew at a quick rate in the quarter to March (+37% from -3% in December). FS firms expect profitability to increase at a similarly fast pace next quarter (+38%).
• Headcount grew at a fast pace in the quarter to March (+40% from +46% in December). Firms expect headcount growth to accelerate slightly next quarter (+45%).
• Firms expect to increase investment in IT in the next 12 months (compared to the last 12). Capital expenditure on land & buildings is set to be unchanged, while firms expect to cut back on investment in vehicles, plant & machinery.
• Uncertainty about demand was the most commonly cited factor likely to limit investment in the next 12 months (53% from 53% in December).

Louise Hellem, CBI chief economist, said: “It’s encouraging to see that the financial services sector had a strong start to the year after a weak final quarter in 2023.

“Firms expect this positive momentum in activity and hiring to continue going forward, although investment intentions are more mixed.

“As a key enabling sector to the rest of the economy, the uptick in activity and hiring will be welcome news. But with global capital markets up for grabs in the race for net zero, we need to send a signal to investors that the UK is open for business, by reinforcing the UK’s leadership in sustainable finance, and offering a world-leading regulatory framework.

“So, the CBI is calling for the delivery of a net zero investment plan to ensure public spending is targeted to those areas where there are market failures and to further leverage private sector investment.”