New survey data has revealed a sharp and rapid decline in business activity across the UK's financial services sector, underscoring the challenges in revitalising the nation's stuttering economy.
Sharp Drop in Volumes and Confidence
The latest figures from the Confederation of British Industry (CBI) indicate that financial firms faced a significant drop in both business volumes and profitability in the final quarter of 2025. This slump has severely dented confidence within the City of London.
The CBI's weighted balance for business volumes fell from -36% in the third quarter to -38% in the last three months of the year. Business sentiment also deteriorated sharply during that period. Analysts point to pre-Budget speculation, ongoing regulatory uncertainty, and a perceived lack of concrete pro-growth measures in Chancellor Rachel Reeves's autumn statement as key factors.
A Gloomy End to 2025 with Cautious Hope for 2026
CBI chief economist Louise Hellem described the findings as evidence of a "gloomy end to 2025" for the sector, with profits continuing to shrink. The bleak outlook is expected to lead to job cuts and narrowing spreads in the near term.
However, Hellem noted a flicker of optimism for the new year. Firms are anticipating a recovery in volume growth during the first quarter of 2026. She welcomed specific Budget decisions, such as changes to stamp duty for newly listed companies and the avoidance of a new banking levy.
"To turn cautious optimism into sustained growth, the government must now focus on delivery and double down on the financial services growth and competitiveness strategy to unlock investment, drive innovation, and reinforce the UK’s global edge," Hellem stated.
Tech Investment and IPO Hopes on the Horizon
The primary focus for future investment is technology. There is hope that the sector's poor productivity trends could be reversed as companies begin to harness the benefits of artificial intelligence (AI) in the coming months.
Industry executives are also looking for a boost in initial public offerings (IPOs) on the London Stock Exchange, with fintech firm Zilch among those considering a listing this year. Furthermore, banking and insurance sectors are hopeful for a resurgence in dealmaking after escaping a proposed levy in the Budget.
Nevertheless, significant questions remain. A key defence investment strategy has been delayed due to internal disagreements, raising concerns about how asset managers can support growth priorities. Additionally, UK companies are awaiting the outcome of a UK-US working group, established by the Labour government, aimed at improving financing and boosting markets in both countries. Industry groups are currently advising officials in these negotiations, which are set to conclude in roughly three months.
