Optimism in the financial services sector surged in the three months to September, as firms reported they were the most upbeat about their overall business situation for almost 17 years according to the latest CBI/PwC Financial Services Survey.
Over half (59%) of financial services firms said they felt more optimistic about the overall business situation in the sector, while 6% said they were less optimistic, giving a balance of +53%,which is the highest since December 1996 when the equivalent figure was 61%.
The numbers employed in the financial services sector increased in the three months to September (+24%), marking the fastest rise since September 2007 (+25%).
Financial services firms also expect to add more jobs in the next three months, although at a slower rate (+14%) than in this quarter.
Stronger demand, changing business strategies and regulatory compliance were identified as major drivers of recruitment.
However, business volumes fell unexpectedly, mainly in the banking sector, where business with financial institutions was the only area to grow.
PwC analysis says this did not impact profitability, which rose for the fourth consecutive quarter as companies managed to offset the fall in business volumes by widening spreads, and business volumes are expected to recover strongly in the next quarter.
The biggest concern for many financial services companies remains statutory legislation and regulation, with almost three quarters (71%) citing it as a likely brake on their business - the highest proportion since March 2011 (76%) and a rise from the 59% recorded in the previous quarter.
More than half of firms said that dealing with the new twin regulators (the Prudential Regulatory Authority and the Financial Conduct Authority) had already contributed to an increase in costs.
Commenting on the banking sector, Kevin Burrowes, PwC's UK financial services leader said: 'Regulation continues to be the sector's greatest source of uncertainty, particularly as UK macroeconomic concerns start to fall away'.
There is further evidence of the current turnround in the UK economy in the latest Business Trends report from BDO which shows business confidence continued to improve this month, reaching the highest level since April 2010.
BDO's Optimism Index has risen beyond the 100.0 mark, the level at which the economy is expected to achieve its long-run average trend growth rate over the coming six months, suggesting that economic growth will pick up speed in the next two quarters.
Optimism and output indices were up for both the manufacturing and services sector, while the overall Output Index, which predicts short-run turnover expectations, reached a 30-month high.
BDO says these figures suggest the recovery is gathering pace and that growth is likely to accelerate in Q4 2013.
