Financial services activity has slumped by 92 percentage points since March, with business confidence plummeting alongside it, according to the Confederation of British Industry (CBI). The sector, which contributes around one-tenth of national output, is facing unprecedented headwinds, affecting banks, insurers, and other financial institutions.
The CBI's net balance for business activity in the financial services sector collapsed from +65 in March to -58 in June. This stark drop signals that firms are increasingly reporting a decline in activity, with more businesses experiencing downturns than upswings. Investment managers showed some resilience, but insurance companies bore the brunt of the losses.
Overwhelmingly, poor returns on investment were cited as the primary factor contributing to this downturn, followed closely by uncertainty about future prospects. This sentiment is echoed in a separate Rathbones survey, which highlighted political uncertainty as a greater concern for businesses than inflation or interest rates.
Rathbones' Senior Investment Director, Elizabeth Hart, noted that clients are actively questioning the Westminster landscape due to potential shifts in taxation policies and regulations concerning pensions and financial planning. This sector is integral to the UK economy, making its health critical for overall growth and stability.
Next week's Mansion House speech by Chancellor Rachel Reeves will be closely watched, but her impending departure from Number 11 may temper investor expectations. City analysts will also be scrutinizing her successor's policy approach, with Ed Miliband the likely candidate given his ties to Andy Burnham. The choice of adviser for proposed reforms concerning land taxes and devolution will be another key area of focus.
Firms anticipate increased investment in technology as a strategic pivot towards digital transformation. However, capital spending on other areas is expected to decline, suggesting firms are adopting a cautious approach in the face of mounting uncertainty.