Optimism in the financial services sector has fallen at the quickest pace since the short-lived Truss regime in September 2022.

The decline in sentiment is in spite of business volumes growing at a faster pace in the quarter to December.

Furthermore, the latest CBI Financial Services quarterly survey, conducted between 21 November and 9 December 2024, showed that firms expect a similarly quick pace of volumes growth over the next quarter.

Investment intentions were mixed, with around two-thirds of firms reporting that “other” factors, mainly linked to the cost implications of Autumn Budget measures, were likely to limit investment over the next 12 months.

Louise Hellem, CBI chief economist, said: “FS firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years.

“These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth. The survey also highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.

“The financial services sector is a vital asset that underpins our economy and provides the stable framework firms need to invest and grow. 

“With much global uncertainty, low fiscal headroom and an urgent need to inject momentum into the economy, delivering a comprehensive financial services strategy and implementing the Mansion House reforms in full is vital to achieving the UK’s growth ambitions.” 

The latest Business Outlook Tracker from Grant Thornton has found that over half (52%) expect to freeze hiring or cut jobs, with many also reducing pay increases and employee benefits to manage these rising costs.

Two thirds (66%) also plan to review their employee benefits offering, with 16% expecting to reduce their investment in employee reward and benefits over the next six months.   

More than half (54%) of respondents also think it likely that their business will need to pass on the impact of these higher employment costs to customers by increasing prices.