MORE than half of the jobs lost in the financial services industry during the banking crisis will have been regained by the end of the first quarter of 2014, according to an authoritative study.
The latest financial services survey from Confederation of British Industry (CBI) and accountancy firm PricewaterhouseCoopers discovered that industry optimism was rising at the fastest rate since the study began in 1989, while profitability rose for the fifth consecutive quarter at the end of 2013.
But PwC warned that clarity was needed around issues such as currency and regulation in any future independent Scotland if the industry was to retain the confidence to invest north of the Border.
The CBI estimates that financial services jobs increased by 10,000 in the fourth quarter of 2013 with another rise of 15,000 expected for the first three months of 2014, based on firms' hiring intentions.
If this pans out, it would take employment in the sector to 1.16 million. This is up on the recent trough of 1.097 million and half way towards the peak of 1.211 million reached in the final quarter of 2008 just as the banking crisis was beginning to unfold.
The CBI's director for competitive markets Matthew Fell said: "As the recovery takes root in the wider economy, it is beginning to feed through to financial services firms.
"Things are starting to look more normal after five years of volatility."
Some 69% of the survey's 87 respondents said they felt more optimistic about the overall business situation, while just 1% were less optimistic. This is the highest positive balance since the survey began in 1989.
Mr Fell said that hiring by financial services firms had "significantly exceeded expectations" in the final three months of 2013 with employment growing at the fastest pace since March 2007.
This rate of expansion is expected to continue in the early months of this year.
Much of this is being driven by the need to add compliance staff, although there is also strong demand in areas such as information technology.
Kevin Burrowes, PWC's UK financial services leader, said: "What we are seeing on the business side is that the pick up in the economy, more broadly across all sectors, is driving very significant demand for banking services in the retail and commercial sectors."
Previously, he said, demand had been led by international customers. Of the firms surveyed, 53% said that business volumes were up in the last quarter, compared to just 7% that said they were down, giving the strongest result since June 2007. About 52% expected volumes to continue to increase in the next quarter, while 2% thought they would fall.
This growth in volumes offset rising costs, while profits increased for the fifth consecutive quarter and are expected to continue to grow strongly in the next three months.
Some uncertainties remain for the industry.
Lindsay Gardiner, financial services partner at PWC in Scotland, said: "As we begin the countdown to the referendum in September, clarity around currency, governance and regulation will be important in ensuring the financial service industry retains the confidence to invest and grow its presence in Scotland, the biggest FS (financial services) market outside London."
Some observers are concerned about the impact on bad debt levels of a rise in currently record low base rates.
Banks have been reporting falling levels of non-performing loans on their books. They do not expect much change in the coming months.
Mr Burrowes said that this revealed that banks did not expect an early rise in interest rates and therefore felt more positive.
"I do feel once we see signs interest rates might rise some of the optimism we see might drop back again. It is unclear in the industry what will happen when interest rates do rise and what impact that will have on household debt," he said.