Optimism among Britain's financial services firms has dropped at its sharpest pace in two years, according to the latest Confederation of British Industry (CBI) survey, as concerns mount over investment costs following the Autumn Budget.

The survey, conducted between 21 November and 9 December 2024, showed sentiment falling to -28 per cent from -13 per cent in September, marking the steepest decline since September 2022, despite improved business volumes in the quarter.

Financial firms faced significant headwinds, including a record-fast decline in spreads and the quickest rise in non-performing loans in over three years. The value of non-performing loans increased at 18 per cent, the fastest rate since March 2021, and is expected to rise further in the coming quarter.

"FS firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years," said Louise Hellem, chief economist at the CBI. "These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth."

The survey revealed widespread concerns about investment limitations, with approximately two-thirds of firms citing "other" factors, primarily related to cost implications from the Autumn Budget measures. The government's recent increase in national insurance contributions for employers by 1.2 percentage points, along with a lowered payment threshold, has particularly impacted sentiment.

Employment in the sector also showed signs of strain, with headcount declining at an accelerated rate in the quarter to December, falling to -25 per cent from -15 per cent in September. Firms expect this downward trend in employment to continue at a similar pace in the coming quarter.

Looking ahead, while companies expect to increase IT investment in the next 12 months, capital expenditure on land, buildings, vehicles, and machinery is projected to decline. Profitability, which fell modestly in the quarter to December, is expected to drop at a significantly quicker pace in the coming months.

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