Business volumes rose for a second consecutive quarter in the three months to September, according to the latest CBI/PWC Financial Services Survey. Although growth slowed compared with the previous quarter, business volumes are expected to rise at a stronger pace in the three months ahead. The survey of 115 financial services firms, conducted between 31st August and 17th September, found a widespread improvement in sentiment and business volumes across the financial services sector in the quarter to September. The only exception to this was building societies, which were slightly less optimistic than three months earlier, amid a decline in business volumes in the three months to September and with a further decline expected in the three months ahead. This is likely related to the phasing out of the stamp duty holiday during the third quarter. Financial services firms reported that profitability improved at an above average pace in the three months to September, marking a second successive quarter of strong growth, with profitability expected to rise at a similar pace in the three months to December. Headcount across the sector as a whole was unchanged last quarter. Following the slight increase in the three months to June, this suggests that numbers employed have broadly stabilised after the sharp declines seen throughout 2020 and the first three months 2021. Headcount is expected to grow in three months to December. The outlook for investment is mixed. Growth in IT spending is gaining momentum, with investment in IT set to increase at the fastest pace for two-and-a-half years. Investment in land & buildings is expected to remain stable, though this follows sharp declines since late 2019, while spending on vehicles, plant & machinery is expected to fall further, though at the slowest pace since the onset of the COVID-19 pandemic. The main constraint on investment over the 12 months ahead was inadequate net returns, which was cited by around half (51%) of financial services firms, similar to the previous quarter. By contrast, the share citing uncertainty about demand fell to its lowest since 2014 (27%). Around one fifth (22%) of financial services firms cited labour shortages as a constraint on investment, unchanged on the previous quarter and in line with the long-run average. Ben Jones, CBI Principal Economist, said: “It’s great to see that the recovery in the financial services sector has firmly taken root, with volumes and profitability growing strongly for a second successive quarter. “Given the improvement in demand across the wider economy, financial services firms have every reason to be more optimistic and are ramping up their investment in new technologies. “The concern now is whether the pace of economic recovery in the UK can be sustained in the months ahead as energy costs spiral and labour shortages and supply chain constraints bite. It is imperative that government and business work together to address short-term challenges, unleash investment and set a sustainable course for the economy.” Isabelle Jenkins, Head of Financial Services at PwC UK, said: “I think that it is clear that the boost to optimism, volumes and returns is good news for the sector and particularly encouraging is the anticipated fall in non-performing loans, with both no doubt contributing to the continued confidence we’re seeing. “The resilience by consumers also plays a significant role however this may be tested if the much reported increases to household costs start to bite. “Elsewhere, the sector will be keeping a keen eye on the tightening of spreads, which reflects intense competition in key markets such as mortgages, plus a need to control costs to sustain returns will likely be on the to-do list of most in the sector. “Other factors, including competition for expertise in areas such as ESG continue to mount so although the outlook is broadly positive, there may be headwinds on the horizon.” Disruption Changes in regulation (90% of firms) and changes in customer preferences and behaviours (68%) are the biggest drivers of disruption for FS firms, with the majority looking to respond to disruption by employing new technology or adapting existing capabilities (72%). Advances in technology and business transformation (85%) and achieving operational resilience (74%) are seen as a clear priorities in FS firms’ future business strategy and transformation plans. Technology The survey asks financial services firms about their use of technology. When it comes to realising benefits from cloud, almost one third are at the benefits realisation stage (31%), most are at the transition stage (41%), and 16% are still at the implementation stage. Firms see understanding the customer and their interactions (55%) as the most valuable action to be gained from advances in AI and analytics. In terms of engagement with different parts of the technology sectors, financial services firms tend to see Established TechFins (52%), systems integrators (49%) and Big Tech firms (40%) as vendors, but are more likely to report actively partnering with emerging FinTechs (36%). More than half (52%) of FS firms see FinTech as being “somewhat important” in supporting their business functions, with just over a third (35%) seeing it as absolutely critical. FinTech is expected to make the biggest difference to FS firms through customer experience (74%). Operational resilience FS firms expect to invest more in cyber security over the next twelve months compared to the previous year (balance of +54%). Cyber resilience priorities include improving cyber breach detection (67%), responding to new threats (66%), and reporting and mitigating cyber security risks (66%). Upskilling Financial services firms are actively engaged in upskilling existing staff (78%), as well as recruiting new staff (74%) to equip their business for future skills needs. Almost nine in ten firms (89%) expect to automate standardised or repetitive tasks over the next five years in response to growing digitisation and new technology adoption. ESG issues FS firms are clear that diversity & inclusion (81%) and CSR (89%) are priorities for their business. Constraints on internal resource (50%) and lack of data (48%) were cited as the top barriers that FS businesses face in delivering their ESG agendas. D&I Actively increasing diversity at management level was cited by four in five firms (80%) as the most significant action taken to boost D&I. This was followed by actively increasing diversity on company board (74%) and within non-management areas of the workforce (70%). Perceptions of the FS sector FS firms believe that public perceptions of the industry have improved as a result of the COVID-19 pandemic (10% said significantly improved and 60% said moderately improved). Almost nine in ten firms believe that FS businesses have an increased role to play in society following the pandemic (44% strongly agreed and 42% agreed). Around two-fifths (42%) of FS firms have made significant changes to their products/services during the pandemic to ensure suitability for different types of customers, while a further 29% were currently reviewing products and planning to implement changes. Central bank digital currencies Half of FS business (50%) are not prepared for central bank issued digital currencies becoming mainstream and need to start preparing. Around a third (32%) are somewhat prepared in that they are aware of the impact and immediate business priorities.

Specialist engineering and construction company, Keltbray Holdings Limited, has agreed a deal with administrators, Grant Thornton UK LLP, to acquire a portfolio of infrastructure contracts and associated assets from nmcn PLC, which went into administration last Wednesday. The deal ensures continuity of delivery of vital infrastructure projects across the UK, minimising any adverse delivery impacts on customers, and secures the futures of 117 employees. The acquired contracts will be managed within Keltbray’s existing infrastructure division, reporting to Managing Director, Phill Price. Keltbray CEO, Darren James said: “Keltbray are pleased with the ‘on strategy’ opportunities presented by the acquisition of these contracts, working with clients on some of the UK’s most important infrastructure projects. “Today’s announcement accelerates our plans to build a resilient, growth-oriented business.  Equally important, we have also safeguarded 117 valuable jobs and livelihoods that could otherwise have been lost to our industry. “The acquisition has required a very rapid, but collaborative approach, and Keltbray would like to thank all parties for their proactivity throughout. I look forward to working with my new colleagues as we build a rewarding future together as one Keltbray.”