Property News | Feeling good

Browse By Subject

Money

Property

Social

Professional

Feeling good

Tuesday, June 30, 2009

Source: Catherine Deshayes

Optimism among financial services firms is at its highest for the first time in two years but challenges lie ahead, the latest business research shows...

The Q2 Confederation of British Industry/ PricewaterhouseCoopers survey shows that levels of business, income and profitability have all fallen in the three months to June.

But the CBI and PwC note that the decline is at a much slower pace than earlier in the year.

Financial services firms are the most upbeat since March 2007 on business volumes with 29 per cent of business polled expecting a rise and 18 per cent forecasting a drop.

Business sentiment also recorded the first increase for two years with a balance of 13 per cent of financial services firms more optimistic about the overall business situation than in March.

Insurance companies have emerged as the most optimistic about a rise in business levels over the nest quarter.

Yet despite the positive outlook for the future the study shows there are significant challenges ahead, particularly within the banking and building society sectors.

The value of non-performing loans in the three months to June grew at its fastest rate since the survey began in 1989, and is up 51 per cent from Q1.

A similar increase in bad debt is expected for Q3.

Banks widened spreads at record levels in Q2 to boost profitability but volumes still showed the sharpest decline since March 1991.

By contrast building societies saw a sharp tightening of spreads and falls in employment.

Income and profitability for building societies is expected to stay flat over the coming three months.

Ian McCafferty, Chief Economic Adviser at the CBI, says, "Having seen business volumes tumble continuously for 21 months, some parts of the financial services sector look like they may be starting to come through the worst.

"The pace of decline in incomes and profitability is slowing, and business volumes are expected to rise in the next quarter.

But he adds, "Although demand looks like it is beginning to recover, it is doing so from a very low base.

"We can still expect lower profitability, significant job losses and cuts to investment in the coming months.

"The rising levels of bad debt are a further worry for the industry."

Source: www.mortgagestrategy.co.uk