IT spend boost for UK finance industry

The financial services sector has enjoyed a third quarter of strong growth, and will continue to invest in technology, the CBI and PricewaterhouseCoopers said today.

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The financial services sector has enjoyed a third quarter of strong growth, and will continue to invest in technology, the CBI and PricewaterhouseCoopers said today.

Technology remains high on the agenda for financial firms, according to the latest Financial Services Survey. The survey, which is conducted quarterly amongst all sectors of the UK financial industry, received 68 responses.

Three financial sectors in particular – building societies, banks (both retail and investment) and fund managers – expect to spend the most on technology over the coming year.

Lai Wah Ko, principal economist at CBI, said this investment in technology is driven by a number of factors.

"The main reason the respondents cited is to increase efficiency," she said. "Banks and building societies want to provide new services, in order to reach new customers, and are spending on technology to do so. There is also the concern to remain competitive. For fund managers, the priority is to expand capacity. Fund managers are doing well and anticipate they will continue to do well, so are increasing scope to cope with this increased demand."

Compliance, such as Markets in Financial Instruments Directive (MiFID), is also contributing to this increased spend, especially for securities trading.

The survey also found continued growth in the value of e-business, although at a slower rate than in previous two surveys. The proportion of firms reported that more than 10% of their customers use web-based services fell from 69% in the three months to March, to 49%. This is the lowest proportion of firms since December 2004. However, 61% of firms expect this level of use over the next twelve months.

The biggest barrier to take up of e-business is customers preference for using other channels. Customer concern about security and data protection was the second most important barrier.

The most favoured strategies to develop e-business activities are web enabling of current business activities and extending current activities. Most UK firms believed that competition will come from new entrants in the next year.

Over the last three months business volumes grew at their fastest rate in seven years, the survey stated.

However, conditions could be turning, as the sector expects a tougher quarter ahead, with hardly any growth in business volumes, a modest decline in incomes, and a squeeze on profitability. Despite a prosperous quarter, there are signs that activity in the sector may be "starting to come off the boil", said Ian McCafferty, CBI Chief Economic Adviser. "The outlook for the coming quarter is one of flat business volumes, falling income values and lower profitability. This may yet turn out to be another temporary soft patch, similar to last September, but could be the first sign of the impact on financial markets of recent rises in global interest rates."

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