Optimism among financial services firms waned for the second consecutive quarter in the three months to June, in the face of stronger competition, demand uncertainty, and sluggish profit, according to a survey conducted by CBI/PwC.
Nearly 13% of financial services firms surveyed were found to be more optimistic, while 29% were less optimistic. However, optimism in other sectors either improved or was stable.
The most significant hurdle for business growth over the coming year was competition (88%), followed by inadequate net returns (60%) and demand uncertainty (60%).
However, overall business volumes continued to rise at a healthy rate, with 46% of firms citing that volumes increased and 24% citing that they decreased, revealed the survey. Also, 21% of respondents anticipated a similar outlook for the next quarter.
Overall, 28% of firms reported increase in profits and 20% reported a decrease.
In the last quarter, firms reported employment to be broadly stable, with 23% citing that headcount had increased and 20% saying it decreased. Headcount is projected to increase again next quarter, though in banking it is expected to be stable.
CBI chief economist Rain Newton-Smith said: "When talking to financial services firms, it’s clear that the low interest rate environment, increasing competition and regulatory pressure continue to weigh on profitability. But after a volatile start to the year there are some positive signs, with business volumes continuing to expand and overall employment levels holding up."
The study highlighted that in the year ahead, financial services firms plan to accelerate IT and marketing capital expenditure. Promoting efficiency (72%) and regulatory compliance (70%) were their most important motivations for investment.
PwC UK financial services leader Andrew Kail said: "Technological advances are proving to be game changers, and increasing competition is causing industry heavyweights to overhaul how they respond to changing customer needs. We are also seeing a flattening of the landscape as banks, asset managers and insurers converge.
"The lack of key skills must be addressed, but institutions should use this as an opportunity to evolve as opposed to a millstone that has to be carried."