There was a decline in optimism among financial services firms for the second consecutive quarter due to stronger competition, rising uncertainty about demand due to Brexit and other economic issues and slowing profits growth, according to the latest CBI/PwC Financial Services Survey.

The quarterly survey of 111 financial services firms found that in the three months to June banks, securities traders and investment management firms were less optimistic about the general business situation than three months earlier. In contrast, sentiment in other sectors either improved or was stable.

Technological advances are becoming an increasingly “game changing” factor for financial services firms.

The CBI said that overall business volumes continued to rise at a healthy rate and the outlook is for a similar expansion next quarter. However, profitability expanded at the weakest pace for two years in the three months to June although profits growth is expected to accelerate next quarter.

Looking ahead to the next quarter, firms do not expect to raise charges further amid the strongest competitive pressures for nine years. Rain Newton-Smith, CBI chief economist, said: “There’s a mood of caution amongst financial services firms with the vote on our EU membership rapidly approaching and global economic waters still choppy.

“When talking to financial services firms, it’s clear that the low interest rate environment, increasing competition and regulatory pressure continue to weigh on profitability. But after a volatile start to the year there are some positive signs with business volumes continuing to expand and overall employment levels holding up.”

Employment was stable in the quarter to June, after a modest increase in the three months to March. Headcount is predicted to increase a little further in the three months to September, reflecting hiring across the majority of sectors.

Andrew Kail, UK financial services leader at PwC, said: “The UK now stands at the crossroads of continued EU membership – the outcome will be keenly awaited by financial services firms.

“Financial services are vitally important for the UK economy - generating jobs, income, investment and exports. Finance and insurance generated £65bn in export earnings for the UK last year, nearly £2,500 per UK household, PwC analysis has shown.

“Technological advances are proving to be game changers and increasing competition is causing industry heavyweights to overhaul how they respond to changing customer needs. We are also seeing a flattening of the landscape as banks, asset managers and insurers converge.”

The latest employment data from the ONS show that employment in financial and insurance activities (workforce jobs measure) dipped during the second half of 2015 to end the year at 1.141 million. Based on the relationship with the survey data, employment is forecast to recover by 5000 during the first three quarters of 2016, to stand at 1.146m by the end of Q3. This would imply that employment would still be 2,000 lower than a year earlier.

In the year ahead, financial services firms expect to increase IT and marketing capital spending at a faster pace and expect to scale back other capital spending at a slower pace than previously.

The CBI speaks on behalf of 190,000 businesses of all sizes and sectors.