Financial services rebound strongly in early 2026, CBI survey finds

Business activity in the UK’s financial services sector surged in the first quarter of 2026, marking the fastest growth in nearly three decades, according to the latest survey from the Confederation of British Industry (CBI).

The quarterly report shows that business volumes rebounded sharply in the three months to March, rising to a balance of +65%, a dramatic turnaround from -38% in December 2025 and the strongest performance since December 1996. The upswing signals a notable recovery in the sector after a prolonged period of stagnation.

Improved activity also lifted overall sentiment among financial services firms for the first time since mid-2024. Optimism rose to +31%, reversing six consecutive quarters of flat or declining confidence. Profitability followed suit, climbing to +38% after more than a year of contraction.

However, the picture is not without challenges. The survey found that average spreads – an important measure of margins – narrowed at the fastest pace since late 2024, suggesting firms are facing mounting competitive or cost pressures. Spreads are expected to continue tightening in the coming months.

Despite these margin pressures, firms remain broadly upbeat about the near-term outlook. Business volumes are forecast to grow strongly again in the next quarter, albeit at a slightly slower pace (+51%). Employment levels, which have been largely unchanged since late 2025, are also expected to edge higher.

Investment plans, however, remain mixed. Financial services companies intend to increase spending on IT over the next year, reflecting ongoing digital transformation efforts. At the same time, capital expenditure on physical assets such as buildings, machinery, and vehicles is expected to decline.

A key concern weighing on investment decisions is uncertainty around demand. Nearly 70% of firms cited this as a limiting factor, the highest level since 2012. Rising operational costs were also highlighted as a significant constraint.

The survey period coincided with the onset of renewed conflict in the Middle East, which began on 28 February. Analysts suggest the geopolitical backdrop has contributed to volatility and caution within the sector.

“Financial services firms saw a sharp recovery in business volumes at the start of 2026, which helped drive a rebound in sentiment,” he said. “But investment intentions remain mixed as concerns about demand uncertainty rose.”

He added that the sector’s central role in global markets makes it particularly sensitive to geopolitical shocks.

“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.”

Paleja called on the government to push forward reforms aimed at boosting growth and competitiveness, including reducing regulatory burdens and accelerating financial sector initiatives.

While the sector’s strong start to 2026 offers grounds for optimism, the survey suggests that uncertainty, both economic and geopolitical, will remain a defining theme in the months ahead.