Financial firms upbeat - study

Ian McCafferty said 23% of firms saw profitability fall in the last quarter

The UK's battered financial services sector may now be on a "gradual path to recovery", according to a survey.

Financial services firms are more upbeat than they have been for two years despite continuing falls in levels of business, income and profitability in the industry for the three months to June, the report by the CBI business group said.

Ian McCafferty, CBI chief economic adviser, said: "Having seen business volumes tumble continuously for 21 months, some parts of the financial services sector look like they may be starting to come through the worst."

Parts of the sector - including insurance companies and banks - are hopeful that business volumes will rise in the coming quarter as industry declines slow.

But the CBI warned that while demand might pick up in the coming months, firms remain under pressure and predicts "significant job losses and cuts to investment".

Asked how business volumes fared in the last quarter, 22% of those surveyed said they rose, while 50% said they fell. The resulting balance of 28% reporting declines was worse than previously expected, but a significant improvement on the 47% indicating slowing business seen in the previous quarter.

Looking to the future, firms' optimism rose for the first time since March 2007, with a balance of 11% expecting business volumes to rise in the coming three months.

And sentiment recorded its first rise in two years, with a balance of 13% of companies more optimistic about the overall business situation in the financial services sector than in March.

Mr McCafferty added: "The pace of decline in incomes and profitability is slowing, and business volumes are expected to rise in the next quarter."

A balance of 23% of firms saw profitability fall in the last quarter, compared with a balance of 47% reporting declines in March.