Firms See Brexit as Most Serious Threat to UK

Optimism in the financial services sector fell for the third consecutive quarter in 2017 in the three months to December, rounding off two years of continuous flat or worsening sentiment, but business conditions saw moderate improvement, according to the latest CBI/PwC Financial Services Survey.

The quarterly survey of 92 firms found that optimism about the overall business situation in the financial services sector fell significantly, having declined in seven out of the last eight quarters. However, the subdued mood last quarter was not universal: while banks, building societies and general insurers were decidedly less positive than three months earlier, finance houses, life insurers and investment managers felt more optimistic, LLB reported.

Growth in overall business volumes slowed for a second consecutive quarter, though conditions varied across the financial services sector. Volumes were unchanged in banking, following two quarterly increases. Building societies reported that volumes rebounded, after falling in the previous quarter.

 Several Challenges

The year 2018 brings several challenges for the financial services sector. Most striking is Brexit, with virtually all firms viewing the impact of Brexit uncertainty as the most serious threat to the UK’s position as a leading global financial center.

Companies are also concerned about other areas that threaten the UK’s global competitiveness, with half citing the perception that the quality of the UK’s physical and digital infrastructure lagged behind other advanced economies, and around a third pointing to an increasingly complex tax regime and the gold-plating of international standards.

Rain Newton-Smith, CBI chief economist, said: “With overall business levels seen as broadly typical, and demand and profitability continuing to expand, the financial services sector ended last year on a stable footing.

“Scratch the surface, however, and a different story is revealed. Optimism in parts of the sector has been falling for the last two years, whilst firms are nearly unanimous in voicing their concern about the damaging impact of Brexit uncertainty and the need for the UK to remain a vibrant center of FinTech and innovation. To restore some confidence, financial services firms absolutely must–no ifs, no buts–get as much certainty as possible on what the UK is aiming for in the Brexit negotiations, the opportunities of success and the consequences of failure.”