A new survey from CBI/PWC points to plunging confidence within the UK´s banking sector as the debate over Brexit intensifies.
The authors of the report blamed deteriorating sentiment on the macroeconomic backdrop, political instability and uncertainty surrounding Brexit.
The CBI/PWC survey on financial services highlighted a sharp decline in optimism across the banking sector over the second quarter. Respondents claimed new requirements from the Prudential Regulation Authority compelling them to make Brexit contingency plans were making them more cautious on the outlook.
UK-based banks are especially anxious about Brexit as they could lose the right to sell their products and services across the remaining 27 EU member states.
Optimism within the banking sector fell 31% versus the prior quarter. This compared with a slight improvement in optimism for the investment management and insurance sectors, where the same gauge climbed by 13% and 3% respectively.
Rising business volumes
Despite the diminishing levels of confidence, the banking sector continued to report higher business volumes and rising profitability over the second quarter.
While the impact of Brexit is partly behind an anticipated increase in spending on regulatory compliance, the banks are also expected to raise investment in IT along with technologies supporting operational data analysis and automation.
Backed by slightly improved confidence, the insurance and investment management subsectors were expected to step up hiring. The two areas also reported rising business volumes and profitability over the quarter.
As with the banking sector, much of their new spending is set to be focused on technology, with insurers and asset managers expected to target investment in robotics and artificial intelligence.
The report´s authors also singled out the banking sector as coming under pressure from heightened competition. Banks are facing increased rivalry from fintech firms who are encrouching on their traditional areas of expertise.
“Competition from other companies and sectors of the industry are expected to increase over the coming year, with IT systems and applications playing a key role in banks’ growth strategies,” added the report.
The CBI/PWC report came as EY unveiled the results of its latest survey on the attractiveness of the UK for financial services companies.
According to EY, 59 out of 222 big financial services firms had started shifting workers and operations out of the UK, or were considering doing so. This was a modest increase from the 53 companies EY placed in this category in March.
EY claimed Dublin was the most popular alternative to London, followed by Frankfurt.