UK FINANCIAL services firms are set to ramp up their technology spending at their fastest rate in two-and-a-half years, despite a decline in overall business optimism.
A quarterly report by the Confederation of British Industry (CBI) and accountancy firm PwC found that sentiment in the sector deteriorated in the three months to June, but firms see IT as more important to business growth than at any time since 2009.
The quarterly survey of 94 firms – which was carried out before the UK General Election on 8 June – found that financial services companies are adopting new technologies to gain customer insights, with almost two thirds actively investing in operational data analysis and almost half actively investing in process automation.
Conversely, respondents are planning to cut back investment into marketing, land and buildings, vehicles, plant and machinery.
“It’s encouraging to see financial services firms continuing to seek out future opportunities, and staying ahead of the curve when it comes to investment in new and innovative technologies,” said the CBI’s chief economist Rain Newton-Smith.
“Political uncertainty and the ongoing wait for an agreed Brexit blueprint are fuelling more questions about companies’ futures and the performance of the wider economy,” added Andrew Kail, head of financial services at PwC.
“In response, firms continue to fine tune their contingency plans, which include options for establishing operations in the EU27 and ensuring they are adequately resourced.
“More widely, the sector continues to respond to the impact of digital advances in the way they serve their customers and they run their business. We are seeing plans in this area accelerate markedly.”
The study also revealed that nearly one fifth of financial services firms believe there is a high likelihood that conditions will worsen over the next six months, with lack of demand most commonly seen as a constraint on growth.
Competition is also a key concern for the sector, with 98 per cent of firms seeing competition coming from within their own sector of financial services. 54 per cent think it will come from other financial services sectors and 49 per cent see competition coming from new entrants.
Despite the pessimism, the firms reported higher business volumes, marking the second successive quarter of improved profitability.
Employment levels also increased, with 46 per cent of firms adding to their staff.
“There are mixed messages coming from the sector,” said Newton-Smith.
“Whilst business activity is holding up strongly, optimism took another dive, which likely reflected a mix of Brexit uncertainty and concerns that financial market conditions could tighten.”