Connect with us

Top Stories

FINANCIAL SERVICES FIRMS SEE FASTEST GROWTH SINCE 2007 – CBI/PwC

Published

on

Raine Newton-Smith

Profitability bounces back and firms start hiring again

The UK’s financial services firms saw strong growth in business volumes in the three months to September, with profits rebounding and hiring on the up. That’s according to the 100th CBI/PwC survey of the sector, out Monday.

The survey reveals that business volumes grew at their fastest rate since 2007 and the momentum is expected to continue into the coming quarter. Rising volumes helped push up overall profitability, which bounced back after the previous quarter’s contraction, and business volumes are predicted to grow strongly again in the next quarter.

Profits rose robustly despite a spike in costs and are expected to grow at a similar rate in the next quarter. But while costs rose at a record pace, this was off-set by a drop in the value of non-performing loans, which fell at the fastest rate since 1996.

Looking ahead, firms say statutory legislation/regulation and competition are likely to be the biggest constraints on business over the coming year, while concerns about level of demand have dropped off sharply.

Rain Newton-Smith, CBI Director for Economics, said:

Raine Newton-Smith

Raine Newton-Smith

“The UK’s financial services sector is enjoying its strongest run of growth since 2007, with activity rising across all customer categories and profitability bouncing back.

“The spike in costs was off-set by a steep fall in the value of non-performing loans, suggesting that much of the fall-out from the financial crisis is now working its way out of the system.

“With competition one of the top concerns for the coming year, the sector could be moving to a new phase in the recovery where firms are feeling more assured about the level of demand, and are now shifting their gaze to competing for new customers and business. This is reflected in their expectation that sales to new customers will be the main driver of growth in the coming quarter.

“Worries about the impact of legislation at home and from Europe, such as new capital requirements and the prospect of a financial transaction tax, are also increasingly weighing on the sector.

“However, with strong broad-based growth, financial services firms are relatively upbeat about future prospects, despite some big geo-political risks that remain on the horizon.”

Kevin Burrowes, UK financial services leader at PwC, said:

“The 100th CBI/PwC Financial Services Survey paints a picture of improving confidence and profitability.  There is an increasing focus on new services and technology-enabled growth. Time will tell if established banks are underestimating their need for digital capabilities as we see a continued influx of new entrants without the chains of legacy systems, meaning that tougher competition is an increasing concern. There are hints of a new ‘war for talent’ and tighter monetary policy in 2015 could also pose a challenge.”

Firms saw a return to hiring following last quarter’s unexpected fall in headcount, but this is expected to stabilise in the next quarter. Taking into account long-run trends, the latest survey results suggest that employment in financial & insurance activities is forecast to stand a little above 1.152 million by the end of Q4 2014, or 28k higher than at the end of 2013.

Investment intentions are mixed with more spending slated on marketing and information technology for the year ahead, but investment in vehicles, plant and machinery is still due to be scaled back.

Growth in optimism about the overall business situation has been easing since the start of the year, perhaps reflecting uncertainty about the outcome of the Scottish referendum – which fell after the survey period – and the situation in the Middle East and Ukraine. However, optimism has still risen at an above-average pace.

The survey of 109 firms operating across the sector was carried out between August 18th and September 4th.

Key findings:

60% of firms said that business volumes were up, while 11% said they were down, giving a balance of +49%, the strongest reading since 2007 (+51%)

Looking ahead to the next quarter, 63% of firms expect business volumes to increase, while 8% say they will decrease, giving a balance of +55%, which is the strongest expectation for growth since June 2010 (+63%)

21% of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 7% said they were less optimistic, giving a balance of +14%, compared with +28% in June.

Incomes, costs and profits:

Overall profitability bounced back from the fall last quarter, with 60% reporting a rise, and 8% a fall, giving a balance of +52%, the fastest growth since March 2011 (62%). A similar rate of growth is expected next quarter (+53%).

Income from fees, commissions or premiums fell unexpectedly in the three months to September (-27%) at the fastest rate since March 2009 (-53%). That disappointed expectations of growth (+12%) and fee/commission income is expected to fall again in the coming quarter (-22%)

Income from net interest, investment or trading rose more strongly than expected (+34%) and is predicted to see similar growth in the coming quarter (+35%)

Average spreads remained broadly stable (+4%) with little change expected in the next three months (+2%)

Total operating costs spiked sharply (+53%), raising at the fastest pace since the survey began (in December 1989), which also pushed up average operating costs per transaction sharply (+43% – again, the fastest rise on record).

Employment:

24% of financial services firms said they increased employment, while 7% said that it had decreased, giving a balance of +17%, an improvement on last quarter’s unexpected fall (-12%)

Firms expect headcount to stabilise next quarter (+2%).

The next 12 months:

Investment prospects are mixed among financial services companies, with firms planning to increase their marketing and IT spend over the next 12 months but scale back on vehicles, plant & machinery:

-Marketing (+26%)

-IT (+65%)

-Land and buildings (+15%)

-Vehicles, plant & machinery (-4%).

-The main reasons for investment are cited as:

-Statutory legislation and regulation (70%)

-Providing new services (68%)

-Increasing efficiency/speed (44%).

The main factors likely to constrain business over the next year:

-Statutory legislation and regulation (80% up from 70% in June)

-Competition (75% up from 53% in June)

-Level of demand (37% down from 62% in June).

Top Stories

Sterling rises above $1.37 for first time since 2018; UK inflation rises

Published

on

Sterling rises above $1.37 for first time since 2018; UK inflation rises 1

By Elizabeth Howcroft

LONDON (Reuters) – A combination of heightened risk appetite in global markets and UK-specific optimism lifted the pound on Wednesday, as it strengthened to its highest in nearly three years against the dollar and five-month highs against the euro.

The dollar weakened against major currencies for the third straight session, helped by U.S. Treasury Secretary nominee Janet Yellen’s urging lawmakers to “act big” on spending and worry about debt later.

The pound rose above $1.37, hitting $1.3720 — its highest since May 2018 — at 1045 GMT. By 1136 GMT it had eased some gains and changed hands at $1.3687, up 0.4% on the day and up 0.2% so far this year.

Versus the euro, the pound hit a five-month high of 88.38 pence per euro, before easing to 88.51 at 1137 GMT, up around 0.5% on the day.

The pound’s recent strengthening can be attributed in part to relief among investors that the impact of Brexit has not caused the chaos some feared, as well as a lessening of negative rates expectations, said Neil Jones, head of FX sales at Mizuho.

“Going into early 2021, there was a bearish sentiment building into the pound on the Brexit deal, in terms of maybe it had a limited reach, and then secondly an expectation of negative rates and so to some extent the market has been cutting down on sterling shorts because neither of those things have been quite so apparent as they were,” he said.

Bank of England Governor Andrew Bailey said last week that there were “lots of issues” with cutting interest rates below zero – a comment which caused sterling to jump.

The UK’s progress in rolling out vaccines is also seen as a positive for investors, Jones said.

Currently, the United Kingdom has vaccinated 4.27 million people with a first dose of the vaccine, among the best in the world per head of population.

“Further progress in vaccinations (a pick-up in the daily rate) by the time the BoE MPC meeting takes place on 4th February may prove enough to hold off on any additional monetary easing,” wrote Derek Halpenny, head of research for global markets at MUFG.

Inflation data for December showed that prices in the UK picked up by more than expected in December, to a 0.6% annual rate.0.6

Inflation has been below the Bank of England’s 2% target since mid-2019 and the COVID-19 pandemic pushed it close to zero as the economy tanked.

(Graphic: CFTC: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeyayxpr/CFTC.png)

(Reporting by Elizabeth Howcroft, editing by Larry King)

Continue Reading

Top Stories

Euro sinks amid broader risk rally against dollar

Published

on

Euro sinks amid broader risk rally against dollar 2

By Ritvik Carvalho

LONDON (Reuters) – The euro struggled to join a broader risk rally against the dollar on Wednesday as analysts said the risk of extended lockdowns in Europe to combat the spread of COVID-19 and the continent’s lag in a vaccine rollout were weighing on the currency.

Down 0.1% against the dollar at $1.2117 by 1130 GMT, Europe’s shared currency had only the safe-haven Swiss franc and Sweden’s crown for company in resisting a broad rally against the greenback by the G-10 group of currencies.

“We’re getting more headlines that the current lockdowns will be extended further, which could mean that the euro zone would be flirting with a double-dip recession before long,” said Valentin Marinov, head of G10 FX research at Credit Agricole, noting Europe’s lag in rolling out a coronavirus vaccine compared to the United States and Britain.

“So all of that plays into the story that tomorrow’s ECB meeting, while uneventful in terms of policy announcements, could convey a relatively dovish message to the market. On top of that, President Lagarde could once again jawbone the euro, so the euro is kind of lagging behind.”

Marinov also noted price action in the pound, which hit $1.3720 – a 2-1/2-year high – and 88.38 pence – its highest since May 2020 against the euro – as a contributing factor to euro weakness. [GBP/]

There was also focus on a story by Bloomberg News, which reported the European Central Bank was conducting its bond purchases with specific yield spreads in mind, a strategy that would be reminiscent of yield curve control.

Elsewhere, the risk-sensitive Australian dollar gained 0.4% to $0.7727. The New Zealand dollar, also a commodity currency like the Aussie, gained 0.25% to $0.7133.

DOLLAR WEAKNESS

While the world will be watching Joe Biden’s inauguration as U.S. president at noon in Washington (1700 GMT), traders were more focused on his policies than the ceremony.

U.S. Treasury Secretary nominee Janet Yellen urged lawmakers at her confirmation hearing to “act big” on stimulus spending and said she believes in market-determined exchange rates, without expressing a view on the dollar’s direction.

The index that measures the dollar’s strength against a basket of peers was up almost 0.1% at 90.510. The euro forms nearly 60% of the dollar index by weight.

It also fell 0.1% against the Japanese yen to 103.81 yen per dollar.

While the dollar has perked up in recent weeks on the back of a rise in U.S. Treasury yields, investors still expect the currency to weaken.

“We remain bearish U.S. dollar, and expect the downtrend to resume as U.S. real yields top out,” said Ebrahim Rahbari, FX strategist at CitiFX.

“Continued Fed dovishness remains important for our view, in addition to global recovery, so we’ll watch upcoming Fed-speak closely.”

Positioning data shows investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.

(Graphic: Dollar positioning: https://fingfx.thomsonreuters.com/gfx/mkt/oakveyombvr/Pasted%20image%201611132945366.png)

UBS Global Wealth Management’s chief investment officer Mark Haefele reiterated a bearish view on the dollar, saying that pro-cyclical currencies such as the euro, commodity-producer currencies, and the pound would benefit “from a broadening economic recovery supported by vaccine rollouts”.

The cryptocurrency Bitcoin fell 4%, trading at $34,468.

(Reporting by Ritvik Carvalho; Editing by Angus MacSwan)

Continue Reading

Top Stories

England soccer star Rashford nets younger buyers for Burberry

Published

on

England soccer star Rashford nets younger buyers for Burberry 3

By Sarah Young

LONDON (Reuters) – Burberry stuck to its full-year goals on Wednesday after a media campaign fronted by high-profile English soccer star and social justice advocate Marcus Rashford drew a younger clientele to the British luxury brand.

Higher full-price sales would boost annual margins and Asian demand remained strong, Burberry said, while warning that it could suffer more sales disruption from COVID-19 lockdowns.

Manchester United striker Rashford, 23, has won plaudits for his campaign to help ensure that poorer children do not go hungry with schools closed during the pandemic.

A first coronavirus wave last year cut Burberry’s sales by as much as 45% before a bounce back on strong demand in mainland China and South Korea, which continued in the last few months.

Shares in Burberry were up 5% to 1,825 pence at 0905 GMT, with Citi analysts saying that improved sales quality from fewer markdowns would drive full-year consensus upgrades.

Burberry’s 9% sales decline in its third quarter was worse than the 6% fall in the second, and the company said that 15% of stores were currently closed and 36% operating with restrictions as a result of measures to curb COVID-19’s spread.

“We expect trading will remain susceptible to regional disruptions as we close the financial year,” Burberry said, adding that it was confident of rebounding when the pandemic eases given the brand’s resonance with customers.

In the third quarter, comparable store sales in Europe, the Middle East, India and Africa declined 37%, hit by shops shut in lockdowns and a lack of tourists visiting Europe, but in the same period, it posted sales growth of 11% in Asia Pacific.

Burberry said that Britain’s new relationship with the European Union would cause headwinds, warning of a modest increase in costs to comply with new rules and also the impact of an end to a scheme for VAT refunds for non-EU tourists.

This would make Britain a less attractive destination for luxury shopping when tourism returns after the pandemic, Burberry said, adding that it would try to mitigate the effect.

(Reporting by Sarah Young; Editing by Kate Holton, James Davey and Alexander Smith)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

Why You Should Take On Debt To Stop Dilution 4 Why You Should Take On Debt To Stop Dilution 5
Finance13 hours ago

Why You Should Take On Debt To Stop Dilution

By Blair Silverberg, CEO of Capital Imagine an exciting space dominated by two major companies, each growing and developing at...

Audi aims to sell one million cars in China in 2023 6 Audi aims to sell one million cars in China in 2023 7
Business13 hours ago

Audi aims to sell one million cars in China in 2023

BEIJING (Reuters) – German premium automaker Audi aims to sell 1 million vehicles in China in 2023, versus 726,000 vehicles...

Netflix forecasts an end to borrowing binge, shares surge 8 Netflix forecasts an end to borrowing binge, shares surge 9
Business13 hours ago

Netflix forecasts an end to borrowing binge, shares surge

By Lisa Richwine and Eva Mathews (Reuters) – Netflix Inc said on Tuesday its global subscriber rolls crossed 200 million...

MGM Resorts drops takeover plan for Ladbrokes-owner Entain 10 MGM Resorts drops takeover plan for Ladbrokes-owner Entain 11
Business13 hours ago

MGM Resorts drops takeover plan for Ladbrokes-owner Entain

By Tanishaa Nadkar (Reuters) – Casino operator MGM Resorts International on Tuesday ditched plans to buy Ladbrokes owner Entain after...

Mike Ashley's Frasers ups stake in Hugo Boss to over 15% 12 Mike Ashley's Frasers ups stake in Hugo Boss to over 15% 13
Business13 hours ago

Mike Ashley’s Frasers ups stake in Hugo Boss to over 15%

(Reuters) – Mike Ashley-led Frasers said on Tuesday it has increased its stake in German luxury fashion house Hugo Boss...

Sterling rises above $1.37 for first time since 2018; UK inflation rises 14 Sterling rises above $1.37 for first time since 2018; UK inflation rises 15
Top Stories14 hours ago

Sterling rises above $1.37 for first time since 2018; UK inflation rises

By Elizabeth Howcroft LONDON (Reuters) – A combination of heightened risk appetite in global markets and UK-specific optimism lifted the...

Euro sinks amid broader risk rally against dollar 16 Euro sinks amid broader risk rally against dollar 17
Top Stories14 hours ago

Euro sinks amid broader risk rally against dollar

By Ritvik Carvalho LONDON (Reuters) – The euro struggled to join a broader risk rally against the dollar on Wednesday...

Britain to publish new weekly consumer spending data 18 Britain to publish new weekly consumer spending data 19
Finance14 hours ago

Britain to publish new weekly consumer spending data

LONDON (Reuters) – Britain’s statistics office said it would publish new weekly consumer spending data from Thursday, based on credit...

Mercedes unveils electric compact SUV in bid to outdo Tesla 20 Mercedes unveils electric compact SUV in bid to outdo Tesla 21
Business15 hours ago

Mercedes unveils electric compact SUV in bid to outdo Tesla

By Nick Carey (Reuters) – Daimler AG’s Mercedes-Benz on Wednesday unveiled the EQA, a new electric compact SUV as part...

England soccer star Rashford nets younger buyers for Burberry 22 England soccer star Rashford nets younger buyers for Burberry 23
Top Stories15 hours ago

England soccer star Rashford nets younger buyers for Burberry

By Sarah Young LONDON (Reuters) – Burberry stuck to its full-year goals on Wednesday after a media campaign fronted by...

Newsletters with Secrets & Analysis. Subscribe Now