A survey suggests that volatile financial markets and economic uncertainties have taken their toll on the financial industry's mood in the UK.

The financial services industry saw a sharp fall in confidence in March, according to a survey by the Confederation of British Industry and PricewaterhouseCoopers.

A measure of optimism about business prospects, compared with the previous three-month period, gives a net negative balance of -21 per cent, the survey showed. This represented the sharpest deterioration in sentiment since December 2011, a period when there was heighted concern about a possible crack-up to the eurozone. That period saw the price of gold hit a record high.

A total of 104 organisations responded to the survey, of which 19 were banks, 11 were building societies, and 13 were finance houses. Other categories included life insurance, general insurance, insurance brokers, securities traders and stockbrokers, investment managers and private equity firms.

The survey found that profitability continued to improve, but at the slowest pace for almost two years. Asked about the latest three-month period, a net 13 per cent said profits improved, while a net 42 per cent gave that answer in the previous survey.

The drop is mainly caused by political uncertainty, continued market turbulence and a drop in profitability at the beginning of this year. This has resulted in a declined focus on new product launches and M&A, while core activities such as customer retention and strategic partnerships are prioritised. 

“There has been a notable fall in confidence amongst the asset and wealth managers during the last quarter, with the current global market turmoil having had an inevitable knock-on effect on confidence,” said Mark Pugh, asset and wealth management leader at PwC.

According to the survey, asset and wealth managers are also falling behind the wider financial services industry when it comes to anticipating and planning for threats. Cybercrime has the potential to cause serious damage to the reputations of the world’s largest fund houses. Annual total costs of cyber-attacks on firms are estimated to be as high as $3 trillion and high-profile cases come to light almost daily - it is therefore no wonder the threat of “cybergeddon” is a major concern for financial services, among other sectors.

“Other FS [financial service] sectors, in particular banking, have been on a journey to build cyber resilience for a while and, as incidents in asset and wealth management will only become more frequent, the industry needs to up its game. This is tough in such difficult markets but the reputational and economic risks are too large to be ignored,” said Pugh.

Commenting specifically on banking, the report said: “Business volumes remained flat, having now failed to grow for five consecutive quarters. Furthermore, the level of business fell below 'normal', to the greatest extent since December 2012. Looking at the customer breakdown, business with private individuals rose solidly, but was offset by declines in transactions with financial institutions and overseas companies. These trends are expected to persist over the next three months, with total volumes set to remain stagnant.”