The financial services sector has seen a sharp fall in optimism since Chancellor Rachel Reeves’ first Budget in October, according to the latest quarterly CBI Financial Services Survey.

The CBI said optimism in the sector fell at the “quickest pace” since September 2022 despite business volumes growing at a faster pace in the quarter to December.

A significant number of financial services firms are expected to reduce headcount, according to the survey.

The quarterly survey, conducted between 21 November and 9 December, revealed that financial services firms expect a quick pace of volumes growth over the next quarter despite optimism concerns.

Investment intentions were mixed, the CBI said, with two-thirds of firms reporting that “other” factors, mainly linked to the cost implications of Autumn Budget measures, were likely to limit investment over the next 12 months.

Among the key findings from the survey:

• Optimism in December, compared with three months ago, fell at the fastest pace since September 2022 (weighted balance of -28% from -13% in September).
• Growth in business volumes picked up in the quarter to December (+32%) after a modest increase in the three months to September (+6%). Firms expect a similarly quick pace of volumes growth over the next three months (+32%).
• Profitability fell at a more modest pace in the quarter to December (-14% from -43% in September). Financial services firms expect a significantly quicker drop in profitability over the next three months (-55%).
• Headcount declined at a quicker rate in the quarter to December (-25% from -15% in September). Firms expect headcount to fall at a similar pace next quarter (-26%).

The CBI survey also found that firms expect to increase IT investment in the next 12 months (compared to the last 12). However, capital expenditures on land and buildings and vehicles, plant and machinery is expected to fall.

Louise Hellem, CBI chief economist, said: “The survey highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.

“With much global uncertainty, low fiscal headroom and an urgent need to inject momentum into the economy, delivering a comprehensive financial services strategy and implementing the Mansion House reforms in full is vital to achieving the UK’s growth ambitions. The financial services sector is a vital asset that underpins our economy and provides the stable framework firms need to invest and grow.”