The UK's financial services firms saw another rise in business volumes in the three months to June, and optimism continued to pick up across the sector, according to the latest CBI/PwC survey.

The survey of 98 firms revealed that business volumes rose across many industry sub-sectors, with the exception of finance houses and parts of the insurance industry. However, overall profitability fell unexpectedly after six quarters of robust rises, with pricing power under pressure and costs rising in many sub-sectors.

In the third quarter firms expect business volumes to grow at a solid pace, profitability to rebound, and numbers employed to increase slightly. They plan to invest more in marketing and IT over the year ahead, but highlighted the increased regulatory burden and inadequate systems capacity to meet demand as factors likely to limit their business.

Loading article content

Matthew Fell, CBI Director for Competitive Markets, said: "Despite a surprise fall in profitability, financial services firms are upbeat about their prospects, with business volumes rising across most sectors."

Headcount fell in the quarter to June, with a slight rise expected next quarter.

Employment in the sector is forecast to stand around 13,000 higher by the end of the current quarter than a year earlier, implying that just under one third of the ground lost during crisis will have been recovered.

Kevin Burrowes, financial services leader at PwC, said: "Banks and insurers see a growing competitive threat from non-financial services companies and new entrants are also trying to capitalise on the improved conditions. This suggests that UK financial services will see increasing pricing pressure. There is now a growing willingness to partner with technology firms and emerging rivals.Regulation will remain a major concern and a key driver of operating costs."

Steve Davies, UK head of retail banking, based at PwC's Edinburgh office, said: "In the event of a Yes vote on September 18th all of these issues would remain relevant but until more certainty is established around the impacts - on regulation, on currency and on the financial products marketplace - and costs of response to changes, it will be difficult for companies to establish how their growth plans will be affected."