The boom in Britain’s financial services businesses is set to lose steam during the present quarter, institutions across the industry predict, according to a key survey released today.

Business volumes across the banking, securities, insurance, fund management and building society sectors rose at their fastest pace in more than seven years over the past three months as financial groups enjoyed a third quarter in a row of strong growth, the survey from the CBI and PricewaterhouseCoopers found.

Yet in the latest sign that rising interest rates at home and abroad are beginning to take a toll of conditions, financial companies’ expectations of trading volumes for the present quarter have sunk to their weakest for more than 2½ years. Expectations of future trading income have also retreated, so that the rapid profit growth over the past quarter is now expected to reverse, with the sector gloomier over profitability prospects than at any time since March 2003.

The results come after recent turbulence in bond and stock markets suggested that tighter global financial conditions are beginning to exert themselves as the world’s central banks tighten policy.

BACKGROUND

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• Inter-bank rates climb to nine-year high

• Emergency injection

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A large majority of City economists believe that the Bank of England’s Monetary Policy Committee will turn the interest-rate screw again on Thursday and order a further quarter-point rise in borrowing costs to a new six-year high of 5.75 per cent.

Financial groups continue to anticipate that demand from within the sector and from Britain’s industrial and commercial companies will be sustained in coming months. The present boom in mergers and acquisitions activity is also tipped to persist, with all building societies and securities trading groups questioned and nearly all banks expecting to see takeover deals initiated within their own sectors.

Reflecting the impact of still higher interest rates on households, financial groups expect to see their retail business to weaken, as well as foreign institutional business.

The survey also found that financial groups had not suffered a rise in costs that they had feared would materialise three months ago.

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