Financial services are enjoying a resurgence with rising levels of business, jobs and profits despite the tough conditions afflicting the rest of the economy, a survey reveals today.
The sector recovered from a year of shrinking or stable volumes to grow briskly in the three months to September, a stark contrast to a year ago when volumes were the lowest since December 1992.
This upbeat picture emerges in the quarterly Financial Services Survey published today by the CBI and PricewaterhouseCoopers.
The report, which covers the major financial services including banks, building societies, traders, fund managers, insurance companies and brokers, found many firms were expanding and taking on staff.
Twenty five per cent more took on employees than shed them and a net 29 per cent expect to do so next quarter as business volumes are forecast to grow again.
The associated higher wage bill forced up overall costs, a balance of 21 per cent of companies reported a rise, but, with business expanding, average costs per transaction fell.
Company income - from fees, commission, interest, investment and trading - rose and is expected to do so again next quarter.
This reflects the increase in business volumes, for a balance of eight per cent of firms, and outweighed the impact of continued weak pricing power - the ability of firms to increase the prices they charge for their services.
As a result overall profitability grew, a balance of 21 per cent recorded a rise, despite the increase in costs.
Meanwhile worries about lack of demand fell markedly to the lowest level since December 1999.
The only dark cloud on the horizon is the increase in non-performing loans where customers are not paying interest or repaying capital as agreed for some parts of the sector, notably building societies and finance houses.
Overall, financial services firms are optimistic about their prospects for the next quarter and this confidence is reflected in the fact that firms expect to invest more in IT, land and buildings over the next 12 months and increase their marketing too.
Ian McCafferty, the CBI's chief economic adviser, said: "It is pleasing that volumes, profitability and employment are all increasing again in financial services after the recent lull.
"However it is important to keep this in context. The factors behind financial services growth are different to those affecting the rest of the economy where conditions remain tough.
"In particular, the financial services sector is boosted by consumer decisions to save as well as borrow.
"Some firms have also benefited from rising stock markets. It would be very satisfying if this survey turned out to be the signal for a revival in the wider economy - but the odds are stacked against it."
John Hitchins, UK banking leader at Pricewaterhouse-Coopers, said: "The survey shows that the recovery in business activity is gathering pace across most parts of the financial services industry. "Optimism, however, was muted reflecting concerns over the fragile state of the economy in the short term.
" Looking longer term, strengthening trends in marketing and investment intentions suggest a stronger underlying confidence."