Financial services activity ‘drops rapidly’ as investors alarmed by Burnham
Business activity across the financial services sector – one of the chief drivers of economic growth across the UK – has dropped sharply as confidence slumps, according to a new survey.
Financial services firms, including banks and insurers, said business volumes had nosedived in the second quarter of the year.
While the net reading for business activity in March recorded by the Confederation of British Industry (CBI) was 65, the score for June collapsed to -58.
Business confidence also dropped rapidly while businesses indicated that their profitability levels had deteriorated sharply. Investment managers bucked the trend as they had become more optimistic about business prospects while insurance companies had suffered from larger falls in activity.
Most businesses said poor returns on investment was the main factor limiting growth across the sector yet uncertainty about future prospects was the second heaviest burden weighing on managers.
Businesses told CBI that investment in technology would likely increase although capital spending on buildings and machinery would stagnate or decline.
Financial services worried by Westminster drama
A separate survey by the wealth manager Rathbones indicated that political uncertainty was a bigger worry for businesses than higher interest rates and continued inflation, reflecting directors’ angst about Andy Burnham’s incoming government.
Elizabeth Hart, Senior Investment Director at Rathbones, said that clients had questioned drama in Westminster as taxation could shift along with rules on pensions and financial planning.
The slump in financial services activity could send a warning to Burnham, who is expected to waltz into Number 10 by 20 July.
Financial services make up around a tenth of national output, underpinning its significance to the UK’s growth prospects.
Rachel Reeves is still expected to deliver the Mansion House speech next week, setting out government policy towards financial services in what could prove to be the Chancellor’s swansong.
Her exit from Number 11 by the end of that week could mean investors take her words with a pinch of salt, as all eyes will be on her successor.
Ed Miliband is widely seen as the likeliest pick for the job given his close relationship with the former Manchester mayor.
City analysts will also be monitoring which adviser Burnham picks for proposed reforms on land taxes and devolution. Former Bank of England deputy governor Andy Haldane, who has provided advice to Burnham, has called for the triple lock pension to be scrapped and suggested pension tax reliefs should favour domestic assets over those overseas.