Business optimism rises as recovery signs appear

The financial services sector is showing signs of recovery, according to the
latest quarterly survey of the sector by the CBI and PricewaterhouseCoopers.

Business optimism is growing faster than at any time for two years, though
the recovery so far has been slower than hoped for.

The research finds that business volumes are no longer declining and, over
the next three months, more financial services firms are expecting them to
increase more significantly than at any time since December 2000. However,
levels of business are still well below what firms consider to be normal.

After falling sharply in the September survey, business optimism stabilised
in December and has now begun to improve. Seventeen per cent of firms are less
optimistic about their prospects and 35 per cent are more optimistic.

In December, the sector was neither optimistic nor gloomy, while in
September the majority of firms were negative about future prospects. This
survey suggests that the worst fears of financial services firms about the
aftermath of 11 September were not fulfilled.

Finance houses and building societies have reported the sharpest increases
in confidence. Banks and general insurers recorded more modest increases by
comparison, but have still shown positive increases in the last two surveys.

The CBI’s chief economic adviser, Ian McCafferty, said: "The decline in
business in financial services has bottomed out but we have yet to see a
resumption of the relatively strong rate of expansion that would be regarded as
normal in this sector. Profitability has been hit, but firms appear confident
their efforts to get a grip on costs, and especially staff costs, will turn
profits round."

John Hitchins, Financial Services Partner at PricewaterhouseCoopers, warned
that economic conditions are still challenging despite the improvement in
business morale.

By Ross Wigham

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