Confidence across Britain’s financial services sector has slumped as the credit squeeze leaves banks, building societies and fund managers predicting steep falls in business volumes, income and profits over the next three months, a key survey shows this morning.

Sentiment over prospects for the rest of the year across the financial services industry has been badly battered by market upheavals, despite business having held up far better than firms expected over the past quarter, according to the quarterly barometer of conditions from the CBI and PricewaterhouseCoopers, the accountants.

The survey shows that, over the next quarter, financial services groups as a whole forecast falling business levels for the first time in three years, with its gauge of trading volumes dropping to its weakest level since June 1991.

Expectations of profits over the coming quarter have also tumbled to the lowest levels since September 1990, during the last recession, as institutions anticipate falls in their incomes from fees, commission and premiums, as well as from interest, investment and trading.

There were more optimistic signs, however, that financial groups believe the expected setback of the coming quarter will prove temporary, with firms across the sector, with the exception of life insurers, continuing to plan to take on more staff. Plans for investment in training, marketing and information technology have also held up.

The survey was carried out between August 22 and September 5, so that its findings may not reflect the full impact of the Northern Rock debacle, although the CBI said that it did cover the period of the sharpest rise in money market interest rates triggered by the credit squeeze.

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