Financial services bosses are confident about their second-quarter results, according to a survey of more than 150 senior executives, despite the squeeze from inflationary pressures forcing them to cut costs. An opinion poll commissioned by KPMG found 88 per cent of leaders were “confident” about overall business growth for the period between April and June, ticking up one per cent from its previous survey in January.
A total of 87 per cent had a positive outlook on profitability, a four percentage point boost from January. Optimism among bankers rose five percentage points to 94 per cent, while confidence among asset and wealth managers fell to 83 per cent from 89 per cent. Meanwhile 79 per cent of insurance executives were confident on the next quarter.
Financial services firms continue to feel squeezed by interest rates being at a 16-year high and inflationary pressures that have pushed up operational costs forcing them to make cost-cutting plans. Nearly 40 per cent of leaders named cost pressures as the biggest challenge facing their business in the coming quarter, followed by inflationary pressures and borrowing costs.
More than a third of leaders planned to reduce costs through reviewing suppliers (37 per cent) and generative AI (35 per cent). Nearly a quarter (23 per cent) planned to make savings by cutting jobs and reigning in hiring, altering their real estate footprints and reviewing staff pay.
Global and UK head of financial services at KPMG, Karim Haji, said: “While financial services leaders are keeping an optimistic outlook, they do so with caution as costs are still a concern, and the sector continues to eye up savings in response to economic pressures.” There is, however, some concern as manufacturers are facing the prospect of two years of “anaemic growth”, research suggests. Make UK said latest forecasts indicate the sector will remain “flat” this year and grow by just half the rate of the economy in 2025.
Its survey of more than 300 companies also found orders are “consistent but subdued” while recruitment and investment plans are fairly strong. Firms in electronics, aerospace and food and drink are more optimistic, while the South East and Wales are said to be performing substantially better than other regions.
According to Make Up, these are becoming permanent, with the strong performance of manufacturing in the South East yet further evidence that levelling up is “failing to address” regional economic imbalance.
Senior economist at Make UP, Fhaheen Khan, said: “While manufacturers’ own confidence remains robust, the overall prospects for the sector are weak for the foreseeable future.
“While there are clearly external factors at play, the UK economy has a fundamental growth problem which a business-as-usual policy process simply will not address. The next government of whatever colour must address this fundamental problem as a matter of national urgency, beginning with a long-term industrial strategy which will really shift the dial on the UK economic performance.” Head of manufacturing at BDO, which helped with the report, Richard Austin, added: “Manufacturers have continued to show their ability to overcome wave after wave of challenges, but they cannot continue to do this indefinitely without some more long-term support from the Government.
“We have reached a tipping point where the ramifications of regional disparity may permanently affect the manufacturing sector, which could hamper future growth.” The end of 2023 was marked by a downturn, with UK manufacturing falling into a deeper contraction. Director at S&P Global Market Intelligence, Rob Dobson, said: “UK manufacturing output contracted at an increased rate at the end of 2023.
“The demand backdrop remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU,” he added. (The writer is our foreign correspondent based in the UK)
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