Demand for financial services in the UK has fallen for the first time in five years, according to a survey by the Confederation of British Industry and PricewaterhouseCoopers, a result from Brexit uncertainty and regulatory changes.
And profitability in the sector which raises most tax in Britain was flat for the third quarter in a row in the three months to December 2018, the survey added.
The slowdown comes with only 75 days until Brexit and amid concerns that the UK could leave the European Union without a deal. The financial sector would be one of the hardest hit by no deal as firms lose access to EU markets and several companies have put in place a no-deal Brexit contingency plan.
The survey of 84 firms said demand is expected to continue falling during the quarter to March, with profitability also expected to drop for the first time in three years.
"A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK's financial services sector," CBI chief economist Rain Newton-Smith said.
She added the survey results should serve as a warning shot about the UK economy. "Financial services are a bellwether for the wider economy. The persistent weakness in optimism and the deterioration in expectations sound a warning for the outlook".
Profits in the financial services sector as a whole remained flat for a third successive quarter, reflecting little change in business volumes and costs. Investment managers and general insurers reported declining profitability. In the three months to March, overall profitability is expected to fall for the first time in over three years, as a result of a more widespread deterioration in expectations across the industry.
Britain's parliament is expected to vote on Tuesday to reject the divorce settlement with the European Union, an outcome that would prolong uncertainty for the financial sector.
