Optimism has deteriorated in the three months to June in the financial services sector, with many companies concerned about the impact of Brexit on their operations, according to a survey from the Confederation of British Industry (CBI) and accountancy PwC published today.

Business sentiment has declined in five out of the last six quarters, the survey of 94 firms found.

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However profitability, the emphasis on automation, and hiring processes have all improved. Indeed, the data was not consistent across the sector as a whole.

While banks and life insurers felt less optimistic than three months earlier, finance houses, insurance brokers and investment managers felt more optimistic.

Volumes are up

Financial services firms reported another quarter of robust expansion, driven largely by demand from private and corporate clients.

Growth was evident across the majority of sectors.

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Only building societies saw no increase in their volumes after almost two years of uninterrupted growth.

CBI and PwC expet overall business volumes  to rise further over the next quarter, albeit at a slower pace.

Profitability

Rising business volumes, coupled with a slight drop in average costs improved profitability.

Profitability is expected to increase further over the next three months, albeit at a more moderate pace.

Automation

The financial services sector is increasingly looking to improve efficiency by adopting new technologies.

Almost two thirds of the firms surveyed said they were actively investing in operational data analysis and almost half said they were spending money on process automation.

Brexit uncertainty

Despite reasons to expect continued economic growth, Brexit poses complications to the business sector, the CBI said.

Rain Newton-Smith, CBI’s chief economist, said in a statement issued to Verdict:

Here are mixed messages coming from the sector. Whilst business activity is holding up strongly, optimism took another dive, which likely reflected a mix of Brexit uncertainty and concerns that financial market conditions could tighten.

Andrew Kail, head of financial services at PwC, said:

Currently the financial services sector is performing well in both business volume terms and underlying profitability. However, another quarter of falling optimism points to an industry harbouring concerns about the future. The UK will continue to be a leading financial centre, but political uncertainty and the ongoing wait for an agreed Brexit blueprint are fuelling more questions about companies’ futures and the performance of the wider economy.

Nearly a fifth of firms surveyed thought there was a high likelihood that conditions will worsen over the next six months, with a further two thirds seeing a medium likelihood.