Financial services growth slows as optimism dips

The UK’s financial services sector experienced a noticeable slowdown in business growth in the first quarter of 2025, as industry confidence continued to wane, according to the latest CBI Financial Services Survey. The findings point to mounting economic pressure and growing uncertainty about future demand.

Business volumes grew modestly in Q1 (+5%), a sharp deceleration from the strong momentum seen in Q4 2024 (+32%). While firms remain hopeful for a rebound in the next quarter (+29% expected growth), the broader sentiment remains cautious, with optimism falling for the third consecutive quarter—albeit at a slower rate (weighted balance of -8%, up from -28% in December).

The quarterly survey, conducted between 28 February and 19 March 2025, revealed further signs of stress across the sector, with profitability declining (-9%) and hiring plans turning pessimistic. After a brief stabilisation in headcount in Q1 (+2%), firms now expect a sharp fall in employment (-34%) by June.

Key findings from the survey include:

Average spreads continued to narrow, though at a slower pace than the previous quarter (-38% vs. -62% in December).
Non-performing loans remained stable in Q1 (0%) but are expected to rise modestly in the next quarter (+11%).
Profitability is forecast to decline further in the coming months (-8%).
Firms plan to cut investment in IT, land & buildings, and equipment—marking the first expected drop in IT investment since December 2010.

Investment confidence was dampened by a spike in uncertainty around demand, now the most cited barrier to investment (42%, up from 16%). Regulatory concerns and the Autumn Budget’s implications also featured heavily in firms’ responses, with 36% citing “other” limiting factors—well above the long-run average of 8%. The cost of finance was another growing concern, cited by 21% of respondents (up from 9%).

Louise Hellem, CBI Chief Economist, said: “The FS sector had a weak start to 2025, with firms reporting only slight growth in business volumes and optimism falling for a third consecutive quarter.

“Profitability was squeezed again, amid a continued decline in average spreads. These challenging business conditions led to negative investment intentions, with FS firms expecting to reduce capital spending on IT for the first time since 2010.”

Hellem warned that broader macroeconomic challenges—including global trade tensions, domestic cost pressures, and looming regulatory changes—are contributing to a more fragile outlook. She urged the government to review aspects of the Employment Rights Bill, suggesting that additional cost burdens could undermine business confidence further and slow down economic recovery.