Financial services grows 'at best rate since credit crunch'

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Profitability improved in the financial services sector for the fifth successive quarter, and is expected to continue growing over the next three months, according to the latest financial services survey from lobbying group the CBI.

The sector grew at its best rate since June 2007, two months before the collapse of Northern Rock. Some 37% of the sector said business volumes rose in the three months to June, while 9% said they fell. The resulting balance of 28% is the most positive since the second quarter of 2007, which was 51%.

But the CBI warned that this fell short of a 63% balance forecast. A similar pace of growth is expected next quarter, by a balance of 24% of firms.

Ian McCafferty, CBI chief economic adviser, said: "Activity picked up in the financial services sector in the last three months at a pace not seen since before the credit crunch. Although this growth was slower than hoped, it did help firms' profitability to rise further.

"There is ongoing concern that prospective regulation may hold back business expansion in the coming year, but financial services firms have become more worried that weak levels of demand will dampen growth prospects."

Business volumes rose across all sub-sectors of financial services in the past three months, apart from general insurance, which saw a modest fall in activity, the CBI said.

Banks' volumes increased after two quarters of decline and building societies saw the fastest rise in volumes since March 2008, helping to achieve a near unanimous rise in profitability.

Total operating costs continued to fall, but at a much slower pace than in the previous quarter.

Profitability was up for the fifth quarter in a row. The balance of 23% is the highest since June 2006, which was 28%.

Numbers employed rose in the sector for the first time since December 2007, and the balance of 12% was broadly in line with expectations of 14%.

Levels of optimism were also up in the sector, with the proportion of firms believing there is a high likelihood of further deterioration in financial markets falling back to 10%. Concern receded particularly in the insurance-related sectors, said the CBI.