Optimism in the financial services sector is improving at the fastest pace since June 2015, according to the latest CBI-PWC Financial Services Survey.

Volumes in the sector are expected to return to growth next quarter, marking the strongest expectations since March 2018.

Key findings from the survey:

• Optimism in the sector improved slightly, ending fifteen consecutive quarters in which sentiment has mostly declined
• 19% of firms said they were more optimistic about the overall business situation compared with three months ago
• 10% of firms said that business volumes were up, while 28% said they were down, giving a balance of -18%, the sharpest fall since September 2012
• Looking ahead 33% of firms expect volumes to rise next quarter and 20% expect them to fall, giving a balance of +14%.
• 21% of financial services firms said they had increased employment, while 4% said that headcount fell, giving a balance of +17%
• Employment growth is set to pick back up next quarter (+23%).

The most significant potential constraints on the level of business over the coming year were seen as level of demand (59% of respondents), statutory legislation and regulation (55%), competition (54%).

The quarterly survey of 94 firms, conducted before the 2019 General Election, found that optimism about the overall business situation in financial services rose for the first time in 12 quarters, and at the fastest pace since June 2015.

Sentiment was mixed by sector, with the headline improvement driven by investment management, insurance broking and general insurance, the survey found. Optimism was flat in banks and building societies, and fell in finance houses and life insurance.

Despite the improvement in confidence, the overall conditions in the three months to December remained “tough,” the survey found.

Business volumes fell further, at the fastest pace since September 2012, marking a full year in which volumes have not risen.

Rain Newton-Smith, CBI chief economist, said: “It’s great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.

“However, the sector isn’t quite out of the woods yet. Against the backdrop of another fall in business and profits, Brexit uncertainty continues to drag on investment plans, and concerns over labour shortages have spiked.”

Andrew Kail, head of Financial Services at PwC, said: “The stirrings of optimism represent a significant turnaround given the flat and falling optimism that has beset the past four years. An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the sector, following the general election.”