RTTNews - UK's financial sector firms expect business volumes to improve over the coming quarter, after falling for the last 21 months, the latest Financial Services Survey by the Confederation of British Industry and PricewaterhouseCoppers showed Monday.

Although the three months to June saw levels of business, income and profitability continue to fall, this was at a much slower pace than earlier this year. This suggests the industry may now be on a gradual path towards recovery, though differences between the sectors remain, the CBI said.

A net balance of 28% of firms said business volumes declined over the last quarter, less than the 47%, who said so in the March quarter and represented the slowest rate of decline since volumes started falling at the end of 2007.

Looking ahead, firms are most upbeat since March 2007, with a net balance of 11% of firms expecting business volumes to rise over the next three months.

Further, business sentiment increased for the first time in two years, with a net 13% of firms optimistic about the overall business situation in the financial services sector compared to a net 34% who were more pessimistic in March.

Profitability continued to drop, but at a slower pace. A net balance of 23% of firms expect profits to fall in this quarter compared to 47% in the March quarter, and is expected to slow further in the next quarter.

Staffing levels continued to fall further, although at a slower pace. A net 33% said staffing levels declined and a net 28% expect their staffing levels to decrease in the coming quarter.

The survey said while capital expenditure in land and buildings, as well as vehicles, plant & machinery are expected to be lower, firms are planning to scale back investments in the IT sector, at the fastest pace since September 1992. Moreover, 86% of firms said lower demand was the main constraint for the investment, the highest balance since March 2003.

The survey said the risk of the financial markets deteriorating further was lower now compared to March. However, nearly 95% of firms agreed that it would take longer than six months for the normal conditions to resume, even as 70% of respondents thought the UK had become less competitive as a financial services center.

Among the sectors, insurance companies are the most optimistic about business growth over the next quarter. The banking sector expects higher volumes in the next quarter, but the sector remains under pressure, the CBI said.

Building societies expect volumes, incomes and profits to stabilize over the next quarter, after experiencing tough business conditions since early 2008. However, securities traders expect the recent improvement to be short-lived, with volume expected to decline again in the next quarter.

Ian McCafferty, CBI Chief Economic Adviser said, We can still expect lower profitability, significant job losses and cuts to investment in the coming months. The rising levels of bad debt are a further worry for the industry.

The survey was conducted between 20th May and 3rd June 2009, there were 73 respondents.

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