The quarterly CBI/PwC financial services survey of 103 firms found that optimism about the overall business situation fell for the fourth consecutive quarter, the longest period of declining sentiment since the global financial crisis of 2008, and the sharpest fall since December 2008.

The findings show 10% of firms said they were more optimistic about the overall business situation compared with three months ago, whilst 45% were less optimistic, giving a balance of -35% (compared with -13% in the previous quarter).

A more pessimistic mood was particularly prevalent among banks, with general insurers and finance houses also less optimistic. However, investment managers, life insurers and insurance brokers were more optimistic than they had been three months earlier.

Overall business volumes were flat in the last quarter of 2016, the research suggest they will pick up somewhat in the first three months of 2017, with stronger demand in the life insurance and investment management sectors contrasting with a more challenging environment expected by banks and building societies.

Growth in profits was also unchanged in the three months to December, but profitability is expected to improve across financial services in the next quarter, (with the exception of building societies), as cost pressures continue to ease.

Asked about the main challenges for financial services firms in 2017, a range of concerns emerged. Almost all (94%) of banks saw preparing for the impact of Brexit as the number one challenge, but this was not the case in any other sector. Building societies were most concerned about macroeconomic uncertainty, while the level of competition preoccupies the insurance sectors. Firms in every sector see the need to intensify their dialogue with regulators in response to uncertainty around Brexit.

Andrew Kail, UK financial services leader at PwC, said: ‘While companies are relatively positive about short term business volumes and profitability, they continue to need to make significant investments to protect their future. The first quarter of 2017 and beyond will see many start to fine tune and activate their Brexit contingency plans as the reality of life outside the single market and the EU begins to dawn.’

PwC’s research suggests the numbers employed in financial service increased slightly during Q4 and a more solid increase predicted for the next three months. Investment intentions are largely at above average levels, driven by a need to increase efficiency/speed, cited by 78% of respondents, and the requirements of statutory legislation and regulation (70% of respondents).