Nine in 10 financial firms expect to perform well over next year despite economic challenges
Almost nine in 10 financial services firms are confident they will perform well over the coming year, data shared exclusively with Morning Wire suggests, although economic pressures remain a leading concern ahead of the general election on 4 July.
Around 89 per cent of businesses rate their performance over the last 12 months as “good” (50 per cent) or “very good” (39 per cent), according to a survey of 501 senior financial services decision makers commissioned by professional services and tech firm Davies.
The same proportion said they were confident about how their business will perform over the coming year.
The findings come amid an improving picture for the UK economy that has spurred a pickup in dealmaking and capital markets activity.
The Bank of England is expected to start lowering interest rates in August or September, with inflation having fallen to the government’s two per cent target in May.
Although figures published last month showed the economy officially came out of a shallow recession in March, it was stagnant in April and affordability pressures continue to weigh on households and companies.
Davies’ research found that “economic turbulence” remains the top immediate concern for financial firms.
Asked about the biggest challenges facing their business at present, 44 per cent cited “economic turbulence”, followed by “regulatory compliance” (43 per cent) and “cybersecurity threats” (38 per cent).
Banks’ profits are expected to take a hit from the implementation of the UK’s final Basel III capital requirements, due next July. Meanwhile, insurers have reportedly warned that new regulatory powers under the government’s overhaul of the EU’s Solvency II regime could hamper their ability to bolster investment in the economy.
Elsewhere, two-thirds of decision makers said interest rate hikes had had a “significant impact” on their firm’s offering since the start of 2022, while 66 per cent said the same for the cost-of-living crisis.
Pino Vallejo, chief executive of Consulting at Davies, said: “Given the challenging economic climate that has defined the past three years, it is positive to see that the UK’s financial services sector is full of confidence.
“Fuelled by strong performances over the past year, the research clearly highlights that most businesses are striving for more growth in the next 12 months. But there is also evidence of some caution, not least in navigating further economic challenges, with the general election likely to prompt more turbulence over the summer months that businesses will have to navigate carefully.”
The research was conducted by Censuswide in the middle of May, before Rishi Sunak called the general election date.