British banks to see recovery falter: survey

LONDON: British banks fear their fragile recovery will grind to a halt over the next few months, according to a survey by employers' organisation the Confederation of British Industry (CBI).

Growth in Britain's financial services industry was lower than expected towards the end of 2009, the quarterly study by CBI and PricewaterhouseCoopers showed.

Banks and building societies warn that an increase in retail and corporate banking lending over the next six months will be choked off by March, leading to cuts in income and profits.

"Firms do not expect growth in business volumes to continue over the coming three months and do not anticipate improving profitability, despite further cost reductions," the CBI said.

Asked how their business volumes fared in the three months to December, 32 percent of institutions said volumes rose, while 28 percent said they had fallen.

The resulting balance of plus four percent is lower than September's figure of plus seven percent.

Ian McCafferty, CBI chief economic advisor, said: "The bounce in UK financial services activity over the past six months is not expected to last as we enter 2010.

"Firms see their business volumes falling back again, with no further improvement in profitability over the next three months."

Banks are the worst-hit, fearing they will see business volumes drop back to the lows of 2009 when the global financial crisis was biting hard.

They pointed to a number of factors, including a flight of savers' money from the 'safe haven' of major banks to investment products in search of higher interest returns and to take advantage of a rising stock market.

The CBI did however see some encouraging signs.

"On a more positive note, financial services firms' confidence in the general business situation has continued to increase, profitability improved and a much slower reduction in numbers employed was seen in this survey," McCafferty said.

"Job losses are also expected to be minimal in the coming quarter."