Business volumes in the financial services sector rebounded in
the first quarter of 2026 at the fastest rate since December
1996, according to the latest CBI Financial Services
Survey.
The improvement in activity supported a pick-up in sentiment for
the first time since June 2024, alongside a recovery in
profitability. However, average spreads narrowed in Q1 at the
fastest rate since December 2024, indicating increased pressure
on firms' margins.
The quarterly survey, conducted between 27 February and 18 March
2026, also found that FS firms expect volumes to continue growing
at a fast pace next quarter. Headcount is anticipated to rise
slightly, after being broadly flat since Q4 2025.
Investment intentions for the year ahead remain mixed. Firms plan
to increase spending on IT, while reducing capital expenditures
on land & buildings and vehicles, plant &
machinery.
Note that the survey was in the field from 27 February and 18
March, a period which spans the onset of the Iran conflict (from
28 February).
Key findings:
-
Business volumes rebounded in the quarter to
March at the fastest rate since December 1996 (+65% from -38%
in December). Firms expect volumes to grow at a rapid, albeit
slightly slower, pace over the next quarter (+51%).
-
Sentiment among FS firms recovered in the
three months to March, following six consecutive quarters of
falling or flat optimism (weighted balance of +31% from -20% in
December).
-
Average spreads narrowed over Q1 2026 at the
fastest rate since December 2024 (-57% from -2% in December)
and are expected to continue narrowing at a sharp,
though somewhat softer, pace over the next three months
(-48%).
- The value of non-performing loans was flat
in the quarter to March (0% from +1% in December) and is set to
remain broadly unchanged over the next quarter (+1%).
-
Profitability recovered at a fast pace in the
quarter to March, following seven consecutive quarters of
decline (+38% from -53% in December). FS firms expect
profitability to rise at a slightly quicker rate next quarter
(+43%).
-
Headcount remained broadly flat over the three
months to March (+3% from -1% in December). Firms expect
headcount to rise marginally in the next three months
(+4%).
- FS firms expect to increase investment in IT over the next
twelve months (compared to the previous twelve), though to a
lesser extent than last quarter. Capital expenditures on land
& buildings and vehicles, plant & machinery are expected
to decline.
- Uncertainty about demand was the most commonly cited factor
expected to limit investment over the next twelve months, rising
to its joint-highest share since September 2012 (69% from 38% in
December; long-run average of 48%).
- Around a quarter of firms cited ‘other' factors as likely to
limit investment (26% from 27% in December), with many comments
pointing to challenges arising from the increased cost of doing
business.
Alpesh Paleja, CBI Deputy Chief Economist,
said:
“Financial services firms saw a sharp recovery in business
volumes at the start of 2026, which helped drive a rebound in
sentiment. Activity is expected to remain strong next quarter,
but investment intentions remain mixed as concerns about demand
uncertainty rose to their joint-highest since 2012.
“The sector still appears to be digesting the implications of
conflict in the Middle East. This is not surprising given that
financial services firms are at the epicentre of volatile market
moves, and that the economic impact of the conflict is still
crystallising.
“Navigating through these uncertain times will require the
government to double down on delivering the Financial Services
Growth and Competitiveness Strategy. Priorities must include
continuing to work with the FCA and PRA to streamline unnecessary
regulatory burdens, accelerating delivery of the Mansion House
reforms, and deploying capital at scale through catalytic finance
programmes –including the British Business Bank.”
