Financial institutions’ sentiment towards the economy deteriorates but outlook for own sector proves more optimistic

UK financial institutions’ outlook for the economy has deteriorated this year with 7% believing that UK economic growth will improve in the next 12 months, compared to 88% in 2021.

The biggest contributors to their outlook are record levels of inflation (70%), the cost-of-living crisis (63%) and heightened geopolitical tensions (30%).

The findings are included in Lloyds Bank’s seventh annual Financial Institutions Sentiment Survey, which gathers views from major banks, asset and wealth management firms, insurers and intermediaries across the UK.

However, firms’ outlook for their own sector was more optimistic. While 12% believe the financial services sector’s growth will improve in the next year, the majority (51%) still expect growth to remain broadly unchanged against a backdrop of economic uncertainty.

Financial services firms are using their strong position to support customers.

More than half (53%) of firms have taken steps to address the impact of inflation on customers, including through changes to products and services (25%), the provision of non-financial support and guidance (20%) and more flexible payment and repayment terms (17%).

UK financial institutions also want the government to focus on making the sector more competitive internationally through the Financial Services and Markets Bill, which was introduced to Parliament in July.

When asked which part of the Bill should be prioritised, updating regulation to ensure a greater focus on growth and global competitiveness was firms’ most popular (59%) response.

Adrian Walkling, head of financial services at Lloyds Bank Corporate and Institutional Banking, said: “Our survey shows that many firms believe the UK now has a unique opportunity to enhance its position as a world leader in financial services.

“Whatever framework of UK-EU regulatory co-operation the government opts for, if competitiveness remains a focus, alongside consumer protections and other vital priorities, I’m confident that our sector will continue to support economic prosperity across the UK.”

Adrian Walkling added: “The UK is navigating another challenging period, so it’s not surprising to see financial institutions’ economic outlook worsen after recovering in 2021.

“What’s clear, however, is that despite this difficult climate, firms are on a relatively confident footing. The sector remains one of the UK’s biggest employers and will continue to invest, lend and innovate to keep the economy moving forward.”