Finance firms set to spend higher profits on IT

Friday 11 October 2013

Finance and IT contractors are both likely to see the benefits of rising profits and optimism in the UK financial services industry.

The most recent survey from PwC and the Confederation of British Industry (CBI) shows that optimism shot upwards in the three months to September, with a balance of 53 per cent of firms saying they felt more confident about the overall position of the sector. This was the highest level since 1996, indicating that the finance sector is clearly freeing itself from the crises of recent years.

Interestingly, this spike came at the same time as business volumes actually fell with a balance of -10 per cent, although more than half the companies surveyed were expecting volumes to increase in the next quarter. Perhaps the optimism was instead drawn from the fact that profits rose for a balance of +26 per cent of firms, a phenomenon which is expected to continue in the coming months.

Income from fees, commissions and premium fell for the first time in a year, but was offset to an extent by revenues from interest, investment and trading. Even so, growth in these venues did not quite match expectations from the previous survey. Meanwhile, average operating costs dropped as indicated by a balance of -9 per cent, which may have contributed to the overall profitability of finance firms in the quarter.

At the same time, employment rose substantially in the sector, with a balance of +24 per cent across the three-month period that marked the best performance since September 2007. Encouragingly, headcounts are forecast to rise in the coming quarter, with a score of +14 per cent. In fact, PwC and CBI calculate that in line with recent employment statistics, another 10,000 jobs will be created in the sector over Q3 - and it is likely that freelance talent will see fresh opportunities in the sector.

“With optimism rising and jobs and profitability growing, this is an encouraging quarter for the financial services sector, despite a fall in business volumes in banking,” says Stephen Gifford, director of economics at CBI. “Financial services companies are less worried than they were about a potential lack of demand, but dealing with regulation is increasingly weighing on plans for business expansion.”

As profits rise, significant sums are likely to be reinvested by financial services companies, although nearly four out of ten said that capital spending was likely to fall thanks to difficulties in accessing finance. To cope with this shortfall, firms are rebalancing their budgets in line with their changing priorities: while far less is predicted to be spent on buildings on land, companies are expecting to plough considerably more money into IT.

Whereas less than three out of ten last September said they planned to increase IT spending, that number has risen to two-thirds this year, which the report’s authors say could be down to the impact of new regulation driving institutions to deliver a more customer-friendly experience across all channels. While this is undoubtedly beneficial for customers, it will also mean that freelancers and contractors can enjoy plenty of new assignments.

By Victoria McDonnell

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