13th April 2018

FS sector fears UK growth will lag behind G7 as Brexit effect takes hold, finds Lloyds

The UK’s economic growth will be outpaced by all other G7 advanced nations this year – and Brexit remains the single biggest risk on the horizon – according to a new report from Lloyds Bank Commercial Banking, canvassing the views of the world’s biggest financial services firms.

The Financial Institutions Sentiment Survey, now in its third year, canvassed the views of over 100 boardroom and senior executives across a broad spectrum of institutions - including global banks, asset managers, insurers and private equity - on their opinions about the UK economy, business risks, regulatory pressures, technological change and cyber-risks.

The report shows that firms across the sector are concerned about prospects for the UK economy, over the coming year, in particular when compared to the outlook for other G7 nations, although on balance most firms expect the economy to remain resilient overall.

Key data:
• 70 per cent of firms across the sector say they worry that UK economic growth will be weaker this year than in any of the other G7 nations – a dramatic worsening of sentiment compared with 2017 when just 23 per cent held that view.
• 48 per cent say they expect UK growth to stay at 2017 levels, while 29 per cent expect it to worsen and 23 per cent believe growth will improve.
• 55 per cent say that they are worried about the effects of leaving the EU, with 28 per cent stating it is the most significant risk they are facing over the coming year.
• 24 per cent say they are now less optimistic about Brexit than they were 12 months ago, while 62 per cent say their opinion has not changed.
• The issue that appears to be the biggest worry for the sector in relation to Brexit is cross border access; 48 per cent say this is the aspect of the UK’s exit from the EU that would cause them the most concern if not agreed during 2018; while 25 per cent highlight regulation and regulatory equivalence, and 10 per cent mention worries about a UK-EU trade deal.
• Firms across the sector remain relatively upbeat about their own prospects for the coming year, with 64 per cent expecting revenues to increase this year, and most expect costs (76 per cent), UK headcount (58 per cent) and business investment in the UK (54 per cent) to remain stable.
• By far the biggest strategic priority for the sector, ranked as the number one aim for 48 per cent of all firms interviewed, is organic growth, but other key aims for the year ahead include acquisition of new clients (35 per cent); expansion within core markets (28 per cent); and introducing new products and services (24 per cent).

Robina Barker Bennett, Managing Director, Head of Financial Institutions, Lloyds Bank Commercial Banking, said: “As the biggest industry in the UK, the financial services sector is a crucial bellwether for the nation’s economic prospects.

"Fears about Brexit are looming large as the final countdown begins to March 2019, but our survey suggests that the UK economy will prove to be resilient and that it will come through the challenges of the next few months relatively unscathed. There is, however, a real risk that our growth will be slower this year than in all other advanced nations; and that we will fall to the back of the G7 pack.”