UK Financial Sector Sentiment Improves: Survey

Britain's financial service companies are more optimistic than at any time in the last two years, although banks remain downbeat about their prospects, the Confederation of British Industry and accountants PricewaterhouseCoopers said on Monday.

A balance of 13 percent of all firms polled in a CBI/PwC survey said they were more optimistic about their overall business situation than they were three months ago, marking the first quarterly increase since 2007.

In the previous survey in March, a balance of 34 percent of firms polled said they were less optimistic.

The more bullish mood was reflected in an expectation that sales would increase, with a balance of 11 percent of firms predicting stronger business volumes over the next three months, the highest reading since March 2007.

"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," said CBI Chief Economist Ian McCafferty.

However, the overall pick-up in sentiment masked persistent gloom in some sub-sectors.

In the banking industry, a balance of 32 percent of lenders said they were less optimistic, an improvement compared with 57 percent in March, but still "firmly negative", the CBI and PwC said.

The downbeat banking sector outlook partly reflected worries about bad debts, with 51 percent balance of all firms polled reporting higher loan impairments in the current quarter, and a balance of 50 percent expecting another increase in the next three months.

"The probable impact of the recession on impairment charges and the impact of new regulation will remain a significant pre-occupation for the sector for some time to come," said John Hitchins, UK banking leader at PwC.

British banks have been hit by a surge in bad debts as a shrinking economy, rising unemployment, and falling asset values leave increasing numbers of borrowers unable to service their loans.

In contrast, sentiment among life insurers was at its highest in five years, with a balance of 75 percent of firms declaring themselves more optimistic despite weaker sales and lower profits in the last three months.

The improvement was driven by hopes of a sales recovery on the back of recent stock market rises and signs of housing market stabilization, the CBI and PwC said.

The survey also showed that more financial sector workers are set to lose their jobs, with a balance of 28 percent of all firms saying they expected headcount to fall in the next quarter, and 33 percent reporting job losses in the last three months.

The survey was conducted between May 20 and June 3.

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