WIREDGOV

Business volumes in the financial services sector rebounded in the first quarter of 2026 at the fastest rate since December 1996, according to the latest CBI Financial Services Survey.   

The improvement in activity supported a pick-up in sentiment for the first time since June 2024, alongside a recovery in profitability. However, average spreads narrowed in Q1 at the fastest rate since December 2024, indicating increased pressure on firms’ margins.  

The quarterly survey, conducted between 27 February and 18 March 2026, also found that FS firms expect volumes to continue growing at a fast pace next quarter. Headcount is anticipated to rise slightly, after being broadly flat since Q4 2025.  

Investment intentions for the year ahead remain mixed. Firms plan to increase spending on IT, while reducing capital expenditures on land & buildings and vehicles, plant & machinery.   

Note that the survey was in the field from 27 February and 18 March, a period which spans the onset of the Iran conflict (from 28 February).  

 Key findings:  

• Business volumes rebounded in the quarter to March at the fastest rate since December 1996 (+65% from -38% in December). Firms expect volumes to grow at a rapid, albeit slightly slower, pace over the next quarter (+51%). 
• Sentiment among FS firms recovered in the three months to March, following six consecutive quarters of falling or flat optimism (weighted balance of +31% from -20% in December). 
• Average spreads narrowed over Q1 2026 at the fastest rate since December 2024 (-57% from -2% in December) and are expected to continue narrowing at a sharp, though somewhat softer, pace over the next three months (-48%). 
• The value of non-performing loans was flat in the quarter to March (0% from +1% in December) and is set to remain broadly unchanged over the next quarter (+1%). 
• Profitability recovered at a fast pace in the quarter to March, following seven consecutive quarters of decline (+38% from -53% in December). FS firms expect profitability to rise at a slightly quicker rate next quarter (+43%). 
• Headcount remained broadly flat over the three months to March (+3% from -1% in December). Firms expect headcount to rise marginally in the next three months (+4%).  
• FS firms expect to increase investment in IT over the next twelve months (compared to the previous twelve), though to a lesser extent than last quarter. Capital expenditures on land & buildings and vehicles, plant & machinery are expected to decline. 
• Uncertainty about demand was the most commonly cited factor expected to limit investment over the next twelve months, rising to its joint-highest share since September 2012 (69% from 38% in December; long-run average of 48%). 
• Around a quarter of firms cited ‘other’ factors as likely to limit investment (26% from 27% in December), with many comments pointing to challenges arising from the increased cost of doing business.  

Alpesh Paleja, CBI Deputy Chief Economist, said:  

“Financial services firms saw a sharp recovery in business volumes at the start of 2026, which helped drive a rebound in sentiment. Activity is expected to remain strong next quarter, but investment intentions remain mixed as concerns about demand uncertainty rose to their joint-highest since 2012.  

“The sector still appears to be digesting the implications of conflict in the Middle East. This is not surprising given that financial services firms are at the epicentre of volatile market moves, and that the economic impact of the conflict is still crystallising.      

“Navigating through these uncertain times will require the government to double down on delivering the Financial Services Growth and Competitiveness Strategy. Priorities must include continuing to work with the FCA and PRA to streamline unnecessary regulatory burdens, accelerating delivery of the Mansion House reforms, and deploying capital at scale through catalytic finance programmes –including the British Business Bank.”