Optimism across the financial services industry fell at the fastest rate in almost three years over the second quarter of 2025, according to new figures from the CBI, with business volumes in the sector suffering an equally steep decline.

The business group’s latest Financial Services Survey found that UK financial firms’ confidence fell from -8% in March to -55% over just three months, while business volumes have fallen from +5% at the end of Q1 to hit a stark -24%.

As business conditions deteriorate, headcounts have inevitably followed suit, dropping 7% after being broadly unchanged in the previous quarter, with FS firms expecting an even sharper decline in their workforce in the next three months to September (-52%).

According to the CBI’s survey, while spending in IT is set to rise modestly, most firms expect to reduce their investment in land, buildings and vehicles over the next twelve months, with uncertainty over demand the most common challenge blocking investment plans (55%).

Adding further to grey clouds over the UK financial sector, the value of non-performing loans fell to -20% in June from 0% in March, with their value anticipated to keep decreasing at a similar pace over the next three months.

Meanwhile, in what looks to be the sole ray of sunshine, profitability for FS firms is expected to rise modestly over the next three months to +9%, although that could yet prove wishful thinking after profits declined across the last quarter, falling to -24% from -9% in March.

“While activity is projected to stabilise next quarter, firms still expect to cut back on hiring and investment going forward,” said Alpesh Paleja, deputy chief economist at the CBI.

“In light of our latest survey data, we look forward to the Financial Services Growth & Competitiveness Strategy and urge its swift implementation to bolster the UK’s competitive edge. 

“But firms facing continued economic uncertainty now will be looking ahead to the Chancellor’s Mansion House speech and to the Autumn Budget for reassurances, particularly that the burden of potential tax rises doesn’t fall squarely on their shoulders.

“Given the Employment Rights Bill also poses further pressure on firms, it’s critical that government give financial services the clarity and confidence needed to achieve its Growth Mission.” 

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The CBI’s survey adds to a litany of similar studies showing that business confidence is falling across the board.

According to the latest Business Barometer from Bank of Scotland, Scottish firms’ confidence fell five points in June to 47%, with businesses reporting markedly lower confidence in their trading prospects, while overall UK business confidence increased just one point last month to reach 51%.

Likewise, a new national poll from the Scottish Chambers of Commerce revealed last week that cashflow and profits have seen contraction over the quarter for Scots firms, driven by rising concerns over labour costs and tax increases.