The Confederation of British Industry (CBI) has said that it expects the financial crisis to get worse in the coming months and could cost profits and jobs for financial companies.
The CBI said that its latest Financial Services Survey, in conjunction with Pricewaterhouse Coopers, showed that numbers employed and profitability fell at their fastest rate in five years, in the last quarter.
The survey showed that firms expected the credit squeeze to get worse in the next six months.
According to the survey 17 per cent of firms said business volumes had grown in the last quarter, while 47 per cent said business volumes had fallen.
The CBI said that the survey showed a rise in total operating costs, although at a slower rate of growth than in the previous four surveys. The CBI said it expected costs to remain flat in the next quarter.
A net 25 per cent of respondents to the survey said they had to cut jobs in the last three months, the highest rate since March 2003, whilst 33 per cent said they expected to cut jobs in the next few months.
Ian McCafferty, CBI chief economic adviser, said, It is clear that the credit crunch has worsened over the first three months of this year. The interbank markets have become more gummed up, with banks even more unwilling to lend, and credit spreads have widened.
While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust, so that credit markets are unlikely to return to anything like normality for some time to come. Even when they do, we will not see a return to the very favourable lending conditions that existed before August.
We can expect further tough times in the financial sector, and as this feeds through into the wider economy it will inevitably be felt through slower economic growth this year and next.