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Brexit

Brexit uncertainty 'remains drag on investment plans despite improved optimism'

By Alan Jones, PA Industrial Correspondent

Brexit uncertainty continues to drag on the investment plans of UK financial services firms despite expectations of a return to growth in the coming months, a new study suggests.

Profits in the sector are set to "stabilise", research by the CBI and PwC among almost 100 companies indicated.

Optimism rose just before the general election, at the fastest pace since the summer of 2015, said the report.

Improvement was driven by investment management, insurance broking and general insurance, but was flat in banks and building societies, said the CBI.

Profits in the sector continued to fall - at the quickest pace in a decade, according to the study.

Rain Newton-Smith, the CBI's chief economist, said: "It's great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.”

"However, the sector isn't quite out of the woods yet. Against the backdrop of another fall in business and profits, Brexit uncertainty continues to drag on investment plans, and concerns over labour shortages have spiked.”

"As the UK begins a new future outside the European Union, the Government must do everything it can to support and stimulate one of the UK's most globally competitive sectors, so that expectations of an upturn can come to pass - both over the next quarter and beyond."

Andrew Kail, head of financial services at PwC, added: "The stirrings of optimism represent a significant turnaround given the flat and falling optimism that has beset the past four years.”

"An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the sector, following the general election.”

"However, this year in particular, firms will need 20/20 vision in order to maximise performance. Not least as there is still work needed to bring clarity on Brexit transitional arrangements."