Optimism in the financial services sector fell at the quickest pace since September 2022, despite business volumes growing at a faster pace in the quarter to December, according to the latest CBI Financial Services Survey.

The quarterly survey, conducted between 21st November and 9th December 2024, showed that growth in business volumes picked up faster in the quarter to December (+32%) after a modest increase in the three months to September (+6%), with firms expecting a similarly quick pace of volumes growth over the next three months (+32%).

Profitability also fell at a more modest pace in the quarter to December (-14%) compared to the previous quarter (-43% to September), although firms now expect a much quicker drop in profitability in the coming months (-55%).

Headcounts also declined at a quicker rate in the quarter up to December (-25%) with businesses predicting that staff numbers will continue to fall at a similar pace next quarter (-26%).

Average spreads fell at a survey-record pace in the quarter to December (-62%), but are expected to decline at a slightly slower rate over the next three months (-57%). 

Meanwhile, the value of non-performing loans increased over the same period (+18% from 16% in September) at the fastest rate since March 2021, with their value anticipated to rise at a similar pace over the next quarter (+21%).

The CBI’s survey also shows that investment intentions are mixed, with around two-thirds (65%) of firms reporting that “other” factors, mainly linked to the cost implications of Autumn Budget measures, were likely to limit their investments over the next year.

The CBI said that the comments it had received highlighted that companies are most concerned about cost increases from the Autumn Budget, with national insurance contribution rates and capital gains tax rises potentially having an impact, despite the Government committing to a 25% cap on corporation tax. 

Firms did, however, report that they anticipate increasing IT investments over the next twelve months, however, capital expenditures on land and buildings, as well as vehicles, plant and machinery are expected to fall.

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“FS firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years,” said Louise Hellem, CBI chief economist.

“These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth. The survey also highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.

“With much global uncertainty, low fiscal headroom and an urgent need to inject momentum into the economy, delivering a comprehensive financial services strategy and implementing the Mansion House reforms in full is vital to achieving the UK’s growth ambitions.”