UK finance sector 'sees less than expected business'

The report says more finance firms do not expect to see growth this quarter

Activity in the UK's financial services sector rose less than expected in the last quarter of 2009 and more firms now expect it to fall, a report says.

The study by the CBI and accountancy group PWC said 32% of firms questioned saw their business volumes rise in the three months to December.

At the same time, 28% said they had fallen, resulting in a balance of +4% - less than the +16% predicted.

The report said more firms anticipated activity falling in January-March.

It said a balance of +13% of firms expected to see a reduction in business volumes in the current quarter, the most negative expectation since December 2008.

Bounce ending

While business volumes across the financial services sector rose between October and December, profitability also increased, lifted by cost reductions, said the report.

Yet respondents also did not expect profitability to increase from January to March.

"The bounce in UK financial services activity over the past six months is not expected to last as we enter 2010," said CBI chief economic adviser Ian McCafferty.

"On a more positive note, financial services firms' confidence in the general business situation has continued to increase, profitability improved and a much slower reduction in numbers employed was seen in this survey.

"Job losses are also expected to be minimal in the coming quarter."

The survey covers banks, building societies, insurance firms and market traders.

Banks 'cautious'

Regarding the commercial banks specifically, the report says "activity and revenues are expected to decline over the coming quarter", following growth in the last half of 2009.

PWC UK banking leader John Hitchins said banks were cautious about future regulations.

This comment comes as the government's Financial Services Bill continues to make its way through Parliament.

The bill's aim is to give the City watchdog, the Financial Services Authority, more powers to regulate banks, such as the authority to stop bankers from receiving excessive bonuses, and to cancel any pay packages which appear to reward undue risk-taking.