Brexit, regulation, and rapid advances in technology are among the main factors contributing to a drop in confidence among the UK’s financial services firms, a study by PwC and the Confederation of British Industry (CBI) has found.
The quarterly survey of 100 firms found optimism about the overall business situation in the financial services sector fell, having declined in all but one quarter since the start of 2016. The deterioration of sentiment in banking and investment management was particularly widespread and only finance houses reported an improvement in optimism.
Six percent of firms said they were more optimistic about the overall business situation compared with three months ago, whilst 36 percent were less optimistic. Barring December 2016, this was the steepest drop since the financial crisis.
Almost half of investment managers said their business would be less profitable over the next few months, and two-fifths of firms cited difficulties in attracting and retaining talent.
Rain Newton-Smith, CBI chief economist, said while demand for services was holding up, it was “impossible” to ignore the challenges arising from a subdued economy, Brexit, regulation and rapid advances in technology.
“For the sector to continue to be one of the UK’s most attractive economic assets, it is fundamental that a withdrawal agreement with the EU is agreed. This will provide temporary but essential relief for financial services firms of all sizes. Then attention can turn to the vital task of finalising our future economic relationship with the EU, in which services need to play a pivotal part.”
More than half of firms said changes in headcount were being guided by technology-driven efficiency gains, regulatory compliance, business transformation and Brexit, all being seen as more important for recruitment strategies than the expected level of demand for services.
Research conducted by EY in this September showed that a third of the UK’s top 222 financial services firms were planning to move at least some staff and operations elsewhere in Europe, or had already done so.