By Kristy Dorsey

Profits, employment and optimism fell across the UK’s financial services sector during the three months to March, with further significant deterioration anticipated in the coming quarter.

Investment levels are also expected to fall sharply as the Covid-19 pandemic continues to unfold, according to the latest CBI/PwC Financial Services Survey. The value of non-performing loans – those on which borrowers have ceased to make repayments – rose at the fastest pace recorded since September 2009, and is forecast to continue climbing.

Covering the banking, insurance, investment management, stockbroking and private equity sectors, the survey was carried out between March 2 and March 26, with 103 firms responding. The bulk of it took place before social distancing measures were ramped up.

The results highlight the difficulty that financial institutions have encountered in attempting to rapidly deploy Government measures to shore up the economy during the crisis.

“Like other businesses, they’ve also been struck by staff shortages and changes to how they operate,” CBI chief economist Rain Newton-Smith said.

“As a result, alleviating capacity pressures and streamlining how firms access Government support through our financial institutions is vital. With the peak of the economic impact to come, equipping the sector to deliver for business is crucial in supporting the growth recovery beyond the pandemic.”

Profitability fell in the three months to March, with 24% of firms reporting an increase and 27% reporting a fall, giving a balance of -4%. Looking ahead to the next three months, more than a third expect a decline in business volumes.

Employment fell at its fastest pace in a year, with the balance of -9% expected to surge to -37% in the coming quarter.

Amid deteriorating optimism, investment is also set to be derailed. IT and training are the only areas where spending is expected to increase, though in the case of IT, this is forecast to be at its lowest in more than seven years.

Investment in land, buildings, plant and machinery are all expected to fall sharply. In addition, marketing spend is set to be cut to the greatest extent since March 2009, from a balance of +7% in the latest three quarters to -32%.

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