New Year cheer: Financial services leaders upbeat for first quarter outlook despite inflation and interest rate concerns
New research from KPMG UK reveals over eight in ten leaders of financial services businesses are confident about short-term growth prospects
New research from KPMG UK reveals over eight in ten leaders of financial services business
- New research from KPMG UK reveals over eight in ten leaders of financial services businesses are confident about short-term growth prospects
- Inflation and interest rates viewed to be biggest challenges over the next quarter
- Leaders have mixed views on the UK’s future as a global financial centre
- Recruiting and retaining talent, and boosting skills are among the biggest workforce investment priorities in 2024, ahead of mental health and diversity and inclusion initiatives
3rd January 2024: Business leaders in the financial services sector are feeling optimistic moving into 2024, according to new research from KPMG UK. The survey of senior executives* working in the sector found that 87% are “confident” when it comes to overall business growth in the first quarter of 2024, supported by a buoyant outlook on profitability for the quarter (83%).
Those working in banking, asset and wealth management are the most optimistic about business growth in Q1 of next year (89%), followed by insurance executives (79%), who continue to face challenges with reinsurance capacity and supply chain inflation.
Inflation and interest rates deemed to be biggest challenges
While a majority (61%) have a broadly positive outlook for the UK economy going into 2024, more than half (56%) believe inflationary pressures will still pose the biggest challenge for their business in the first quarter. This is followed by 46% citing interest rates as the most pressing challenge. While more than a third (37%) believe cost pressures will be their biggest issue, 85% are confident they can manage business costs, such as rising energy bills, throughout the quarter.
Despite ongoing political uncertainty and ongoing conflicts around the world, geopolitical risks were ranked lower than economic concerns, with just 21% believing this will pose the greatest challenge to their business in the first quarter.
“It’s great to see financial services leaders go into the New Year feeling confident despite ongoing economic turbulence, which is set to continue to challenge the sector in the first quarter,” commented Karim Haji, global and UK head of financial services at KPMG. “While on the surface, leaders seem less concerned about the specific impact of geopolitical uncertainty, there’s no denying that it is in part adding to inflationary and interest rate pressures. With interest rates set to stay high in a bid to tackle persistent inflation, combined with the added uncertainty of looming elections in the UK and USA, it will be interesting to see what impact this has on sector confidence beyond the first quarter.”
Mixed views on the UK’s future as a global financial centre
While a majority of leaders (73%) across financial services are confident when it comes to the view that the UK can maintain its position as a global financial centre over the next three years, perspectives vary between different parts of the sector. 84% of banking executives are confident that the UK can maintain its position but more than half (53%) of insurance executives are not, followed by more than a third (37%) working in asset and wealth management.
Executives point to reducing regulatory pressures, tackling inflation and interest rates, and overhauling the tax system as key areas to address to help the country maintain its position as a leading financial centre.
“Despite changes to listings rules, fewer international firms are choosing to list in London and some UK domiciled brands are looking to list elsewhere. This is creating some uncertainty over the City’s future position as a global financial centre,” said Karim. “As we go into 2024, we are seeing a promising direction of travel from the Edinburgh Reforms package in the bid to boost competitiveness. While the Treasury Committee has highlighted that change is not happening quickly enough, part of the attractiveness of the UK is that our regulatory system is relatively stable. This, together with a plan for enhanced competitiveness will safeguard the UK’s future position on the global stage and boost long-term growth.”
Sector focused on addressing hiring and retention challenges in 2024, followed by employee mental health and diversity and inclusion initiatives
While most executives (79%) are confident that they can hire the skills they need in the first quarter of next year, recruiting and retaining talent, and boosting skills are among the biggest workforce investment priorities in 2024. These are followed by improving employee mental health and wellbeing, and accelerating diversity and inclusion programmes.
In advance of the publication of the FCA’s diversity and inclusion (D&I) policy for financial services expected in early 2024, the sector shows signs of potential over-confidence when it comes to the progress of its D&I strategies. Over half (55%) feel they are ahead of other companies in the sector and more than a third (38%) feel they are on par with their counterparts. Leadership accountability was ranked by most (36%) as what is needed to help improve their D&I strategies, followed by in-person training (34%) and employee networks (33%).
The majority (38%) feel that ethnic diversity is the area of D&I that the sector needs to focus on most in 2024, followed by gender and socio-economic diversity (33% respectively).
“It’s interesting to see the confidence in the sector when it comes to progress being made on D&I policies – and it’s important to point out that this is a subjective view and perhaps a sign that leaders need better external assurance on how they compare against competitors,” comments Karim.
“Understandably the sector is most focused on investing in workforce areas that have a more direct impact on near-term profitability and growth. But this can’t come at the expense of initiatives that support broader employee and societal needs such as mental health and D&I, which are integral to the long-term success of the sector,” added Karim.
“While leaders in financial services believe their D&I strategies are up to scratch, it’ll be interesting to see what these look like against the FCA’s new regulatory framework next year. Whilst there seems to be strong support for the need for progress, there are some questions being raised by industry leaders on the need for mandatory disclosures,” he concluded.
*Online quantitative research conducted by Opinium on behalf of KPMG between 29th November – 6th December 2023 of 160 UK adults who are director level in financial services companies.
N.B. the percentages from those who work for insurance companies came from a low base size.
Follow us on twitter: @kpmguk
For further information please contact:
Helen Jackson and Petra Shuttlewood (job share)
M: +4479 0111 5649
M: +44 7510 375540
About KPMG UK
KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 17,000 partners and staff. The UK firm recorded a revenue of £2.72 billion in the year ended 30 September 2022.
KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.