UK financials report 1st growth in 2 years

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(Agencies)
Updated: 2009-10-05 11:02

British finance firms enjoyed their first growth spell in two years during the third quarter, but the sector is concerned about whether demand will hold up, a survey from the Confederation of British Industry showed.

Nearly a third of 89 firms polled reported a rise in business volumes in the three months to September 2, against 24 percent reporting a decline, giving a balance of 7 percent, the CBI, Britain's biggest business lobby, said on Monday.

That was the first time firms reporting growth outnumbered those suffering a contraction since September 2007.

"After nearly two years of exceptionally tough operating conditions, signs of a brighter outlook are appearing in the financial services sector," CBI chief economist Ian McCafferty said.

"Business volumes have increased for the first time since the onset of the credit crunch, and a fall in running costs has helped lift profitability."

Uncertain Future

However, the survey found companies were worried about their future prospects, with a net 69 percent naming uncertainy about demand as the biggest obstacle to investment in the year ahead, the highest proportion since 2002.

Finance firms were the first casualties of the global credit crunch which began in August 2007 as rising US mortgage defaults slashed the value of credit-backed securities held by financial institutions worldwide, prompting banks to stop lending to each other.

The consequent credit shortage spilled over into the wider economy despite taxpayer-funded bailouts of the banking sector, pushing most Western countries into recession, and triggering a sharp rise in unemployment.

Forward-looking indicators suggest Britain's economy returned to growth in the third quarter after a sharp contraction in the first half, helped in part by aggressive interest rate cuts from the Bank of England which also pumped money into the economy.

Securities traders, investment managers and finance houses reported the strongest rise in business activity during the third quarter, the CBI said, while volumes were stable in the banking sector.

However, life insurers, insurance brokers and building societies all reported a drop in business volumes.