Growth in the financial services sector is expected to slow even further in the fourth quarter.

A survey by the Confederation of British Industry (CBI) and PricewaterhouseCooper found that firms expected growth to be slower in the next three months and for there to be no improvement in profitability.

This is the first time in two years firms have forecast a lack of profit growth. The financial services survey questioned 84 firms on their expectations for the next three months.

Ian McCafferty, chief economic adviser for the CBI, said: “After a torrid couple of months on global financial markets, the mood has clearly darkened. Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.”

The survey also questioned firms categorised by sector.

Growth in investment management was down sharply as were average operating costs. Profitability increased but was below expectations and employment was down.

Pars Purewal, UK asset management leader at PwC, said: “The continued uncertainty of sovereign debt markets and the risk of greater turmoil are leading many securities traders to report downbeat predictions for volumes and revenue.

“Many in the industry expect the full effects of the European sovereign debt crisis are yet to materialise and this is leading to a cautious outlook, with job losses looking likely.”

However, the outlook was more positive for banks after they saw increased profitability and expect growth in the volume of business next quarter.

Andrew Gray, UK banking leader at PwC, said banking had seen a “solid last quarter” with sustained bank margins and overall profitability, improved levels of retail and commercial customers and growing revenues.

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