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Banks’ gloomy outlook reaches lowest point since 2008 crash

Banks’ outlook for their overall business situation has reached the lowest point since the financial crisis of 2008.

A quarterly survey of financial services companies conducted by the Confederation of British Industry (CBI) found that optimism among the 103 firms interviewed fell for the fourth consecutive quarter, marking the longest period of declining sentiment in seven years.

Banks, general insurers and finance houses displayed a more pessimistic attitude than life insurers, investment managers and insurance brokers.

Business volumes in the last quarter of 2016 were flat but those surveyed expected activity to pick up in the first three months of 2017. More challenging conditions are expected to prevail in the banking and mutual sector.

Firms were asked to list the main challenges facing the financial services sector this year. Nine in 10 banks saw preparing for the impact of Brexit as their biggest obstacle, a view not shared by any other sector. Macroeconmic uncertainties weighed heaviest on the minds of those in the building societies sector. Insurers said competition was the biggest challenge for their businesses.

All firms were united on the view they needed to step up their talks with regulators in response to uncertainty around Brexit.

Andrew Kail, head of financial services at Pricewaterhouse Coopers, said: “Financial services companies face many challenges to their business models from competition, regulation, technology and Brexit and, as a consequence, are having to take some big decisions about their future strategy.

“While companies are relatively positive about short-term business volumes and profitability, they continue to need to make significant investments to protect their futures. The first quarter of 2017 and beyond will see many start to fine tune and activate their Brexit contingency plans as the reality of life outside the single market and the EU begins to dawn.”

In the Prime Minister’s Brexit speech delivered on 17 January, Theresa May announced that Britain would not retain its membership of the Single Market, an uncertainty which had hovered over the UK since its decision to leave the European Union.

The CBI’s chief economist Rain Newton-Smith said ruling out membership of the Single Market had reduced options for maintaining a barrier-free relationship between the UK and the EU. However, he added that the clarity over the country’s position and the Prime Minister’s ambition to create an open and global Britain, would be welcomed by businesses.

“Business stands ready to support the negotiations to get the best possible deal for the UK by ensuring that the economic case is heard loud and clear,” said Newton-Smith.

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