Smiles in the City: Optimism in the financial sector rises

The words ‘optimism’ and ‘finance’ have seldom been seen together over the past five years as we’ve trundled through the worst recession in memory, but it looks as though things are on the up. Positivity in the financial services sector has surged in the three months to September with 59% of firms feeling optimistic about business according to a CBI/PwC report – the highest level of optimism for 17 years.
 
We find it hard to believe that the City is more optimistic now than it has been since 1996…but perhaps that’s the effect of being so glum for so long.
 
Business levels were down, with 32% experiencing a drop in business volumes and only 22% seeing a rise but according to the report, 51% of firms expect to see a rise in the next quarter.
 
Another cause for celebration is the rise in profitability reported by firms in the survey – profitability rose for the fourth consecutive quarter, as companies managed to offset the drop in business volumes by widening spreads.
 
‘Banks’ optimism is increasingly buoyant despite seeing a slight seasonal blip in commercial and industrial volumes,’ said Kevin Burrowes, PwC’s UK financial services leader.
 
‘Activity and profitability are expected to grow as the economy recovers, and investment in new products and infrastructure is increasing. A reduction in industrial and commercial business down to the quiet summer was expected and is not an indication of a long-term trend.’
 
Employment at financial firms is also on the rise. The numbers of people employed by the sector increased by 24% from June to September – the fastest rise since 2007. This hike in employment is expected to continue in the next quarter, but at a slower pace.
 
It won’t come as a huge shock to hear increased regulation is seen as a burden on financial firms. More than half of those surveyed felt dealing with the two-headed regulation hydra - the Financial Conduct Authority and the Prudential Regulatory Authority - had increased costs. Meanwhile 71% cited statutory legislation and regulation as factors likely to limit business expansion.
 
‘Regulation continues to be the sector’s greatest source of uncertainty, particularly as UK macroeconomic concerns start to fall away,’ said Burrowes.
 
But all in all, we can expect to see more smiles in the Square Mile. And that ain’t no bad thing.