U.K. Financial Company Pessimism Increases, CBI Says

By Gavin Finch

Jan. 11 (Bloomberg) -- U.K. financial-services companies are more pessimistic than at any time in the past year on the outlook for business growth, according to the Confederation of British Industry.

“The bounce in U.K. financial-services activity over the past six months is not expected to last as we enter 2010,” Ian McCafferty, chief economic adviser at Britain’s biggest lobby group said in an e-mailed statement. “Firms see their business volumes falling back again, with no further improvement in profitability over the next three months.”

The number of financial-services companies expecting a reduction in business volumes in the first quarter was 13 percent more than those anticipating a rise, the CBI said.

That’s the worst balance since December 2008, when the global economy was reeling following the collapse of Lehman Brothers Holdings Inc., according to the statement. The U.K. faces a “bumpy and uneven” path out of recession, Bank of England policy maker Kate Barker said last month.

Factors preventing the expansion of business included “uncertainty about demand,” increased competition and growing regulatory requirements, the survey showed. Companies told the CBI it’s unlikely that financial markets will deteriorate further.

Securities traders expect a “sharp” drop in profits in the first quarter of 2010 as proprietary trading income plummets, the CBI said.

‘Tough Going’

“The industry as a whole expects the coming quarter to be pretty tough going,” said John Hitchins, U.K. banking leader at PricewaterhouseCoopers LLP, which conducted the survey with the CBI. “They think things will get better in the medium term, and that the worst is over.”

The number of traders expecting income from investment and trading to fall in the first quarter was the most on record, the group’s quarterly financial-services survey showed.

The Financial Services Authority will force as many as 5,000 bankers earning more than 1 million pounds ($1.6 million) a year to defer 60 percent of their bonuses for three years, The Sunday Times reported yesterday. The move follows last year’s government decision to tax bonuses above 25,000 pounds at 50 percent.

The CBI surveyed 83 financial-services companies, including banks, building societies, insurers, brokers and fund managers from Nov. 18 to Dec. 2. The CBI represents about 240,000 companies that employ one-third of Britain’s private sector workforce. The survey began in 1989.

U.K. private businesses are more optimistic than a year ago on the economic outlook, according to a survey by Grant Thornton U.K. LLP and Experian Plc. The survey, which includes family owned firms, found that 58 percent expected revenue to increase in 2010, compared with 37 percent who forecast gains at the start of 2009.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net