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UK Financial Services Optimism Strongest Since December 2013: Survey

Optimism among British financial services firms rose to its highest level in more than a year in the first quarter as profitability improved in most sectors despite weak growth in business volumes, results of a survey by the Confederation of British Industry revealed Monday.

The latest CBI/PwC Financial Services Survey showed that 59 percent of financial services firms were more optimistic than three months ago, while 9 percent were less optimistic. That gave a balance of +50 percent, which was the strongest since December 2013 when it was +68 percent.

Business volumes grew at the weakest pace in a year. Thirty-one percent of firms reported an increase in volumes, while seven percent said they decreased, leading to a balance of +24 percent.

Volumes stagnated in banking, while they stabilized in building societies following a sharp fall in the previous three months.

Looking ahead, 37 percent of firms expect business volumes to increase in the next quarter, while 3 percent saw a decrease, giving a balance of +34 percent.

"Despite continuing strong growth in optimism, this survey was conducted before the Budget, so it's possible that yet another change to the bank levy may have dented the upbeat outlook in the sector," Rain Newton-Smith, CBI Director of Economics, said.

"Firms plan to cut their marketing spend and increase their IT investment over the next year, as they focus on increasing efficiency and selling to existing customers, rather than trying to win new business."

Income from fees, commissions and premiums increased in the three months to March and firms expect it to grow even more strongly next quarter. Growth in the income from net interest, investment or trading income is expected to grow at the same rate next quarter.

Operating costs rose in the third quarter after declining in the previous three months. Total operating costs are expected to rise faster in the three months to June.

Meanwhile, firms reduced employment for a second straight quarter, as banks shed staff to make their business operations leaner, as they refocus activities as a result of new capital rules and regulatory requirements.

The survey found that 23 percent of financial services firms increased employment, while 46 percent said headcount had fallen, driven by the banking sector. This dragged the overall balance down to -24 percent versus -9 percent in the previous survey.

Going forward, 26 percent of firms plan to raise their staff levels next quarter, while 39 percent expect numbers employed to fall, leading to a balance of -13 percent.

Separate survey figures from recruiter Astbury Marsden showed on Monday that City jobs grew by nearly 25 percent year-on-year to 3,030 in March, as banks hired more staff to cope with a surge in M&A activity.

Official figures from the Office for National Statistics had shown that employment in financial & insurance activities declined for a second quarter in a row in the final three months of 2014, edging down by 1,000, to 1.120 million.

The CBI survey found that employment in financial & insurance activities was forecast to dip by a further 4,000 in the first quarter and 2,000 in the second quarter, to stand at 1.115 million by the end of June 2015.

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