The City has started hiring on the same scale as before the financial crisis despite growing concerns over British banks’ exposure to the eurozone debt crisis and the weakness of the economic recovery.
The latest CBI/PwC Financial Services Survey found that the number of people employed in the sector rose by 11,000 in the second quarter of the year — the fastest rate since the crisis began in September 2007.
The trend is likely to continue over the next few months, with the CBI forecasting that another 10,000 jobs will be added to the sector in the third quarter. The CBI said that the increase in hiring was mainly due to companies recruiting a huge number of compliance specialists to deal with new regulatory rules. Another factor was that they were making up for the aggressive cull during the depths of the crisis.
Concerns remain, though, over the state of the financial markets. Most financial services companies predict that normal market conditions will not return for at least six months.
The rise in recruitment is in stark contrast to the measures taken by Lloyds Banking Group, which recently announced that it is to cull 15,000 jobs as the new chief executive António Horta-Osório attempts to cut costs.
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The survey also revealed that the financial services industry as a whole, which also includes sectors such as insurance and building societies, endured a slowdown in growth. Seventeen per cent of firms said that business volumes rose in the three month period, which was lower than the 30 per cent expected and represented a decline on the previous three quarters.
Growth in business volumes was expected to slow further in the next three months as expectations for growth sank to their lowest levels since December 2009.
The value of fee, commission or premium income rose strongly for the second consecutive quarter, while the value of net interest, investment or trading income grew at its fastest rate since March 2007.
Andrew Gray, UK banking leader at PwC, said: “Concerns about economic recovery and demand have caused a dip in the banks’ confidence while, for the first time in a year, business volumes are dropping off. It’s been an unsettling quarter, given the release of the interim report of the Independent Commission on Bankings and the loss of the Payment Protection Insurance case.
“Regulatory pressure is still immense and the banks now expect to spend even more than anticipated on compliance over the next year. The fresh wave of cost-reduction plans announced recently is a sure sign that the banks are keenly aware of the need to improve profitability.”
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Mr Gray added that while there was good news on recruitment, banks remain focused on costs. “Recent announcements show banks will continue to make headcount reductions where required,” he said.
Schroeders, one of Britain’s leading investors, has warned the Treasury that excessive regulation could put off investment in banks. It fears that government-backed plans to put firewalls around retail banking are too vague for investors to assess their impact.