24th June 2024

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Business Industry and Financial

UK Financial service leaders “upbeat” for Q1, despite inflation concerns: KPMG UK

Financial services leaders across the UK are said to be “upbeat” moving into the first quarter of 2024, despite concerns regarding inflation and interest rates.

claims-social-inflationNew research from KPMG UK shows that 87% of senior executives working in the sector are “confident” when it comes to overall business growth in Q124, which is supported by a buoyant outlook on profitability for the quarter (83%).

A survey recently conducted by KPMG UK reveals that those working in banking, asset and wealth management are the most optimistic about business growth in Q1 (89%), which is closely followed by insurance executives (79%), who continue to face challenges with reinsurance capacity and supply chain inflation.

However, 61% of respondents are said to have a broadly positive outlook for the UK economy going into 2024, and 56% believe that inflationary pressures will still be the biggest challenge for their business throughout the first quarter.

This is followed by 46% citing interest rates as the most pressing challenge. Then, 37% also said that they believe that cost pressures will be their biggest issue, with 85% remaining confident they can manage business costs, such as rising energy bills, throughout the quarter.

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An interesting statistic from the survey shows that despite ongoing political uncertainty and ongoing conflicts around the world, geopolitical risks were ranked lower than economic concerns, with only 21% believing this will pose the greatest challenge to their business in the first quarter.

Karim Haji, global and UK head of financial services at KPMG, commented: “It’s great to see financial services leaders go into the New Year feeling confident despite ongoing economic turbulence, which is set to continue to challenge the sector in the first quarter.

“While on the surface, leaders seem less concerned about the specific impact of geopolitical uncertainty, there’s no denying that it is in part adding to inflationary and interest rate pressures. With interest rates set to stay high in a bid to tackle persistent inflation, combined with the added uncertainty of looming elections in the UK and USA, it will be interesting to see what impact this has on sector confidence beyond the first quarter.”

Moving forward, KPMG UK’s research also highlights how there are mixed views on the UK’s future as a global financial centre.

Despite the majority of leaders (73%) across financial services saying that they are confident when it comes to the view that the UK can maintain its position as a global financial centre over the next three years, perspectives vary between different parts of the sector.

The survey reveals that 84% of banking executives are confident that the UK can maintain its position but 53% of insurance executives are not, followed by 37% working in asset and wealth management.

Reducing regulatory pressures, tackling both inflation and interest rates, as well as overhauling the tax systems, were pointed out as key areas to address, in order to help the country maintain its position as a leading financial centre.

“Despite changes to listings rules, fewer international firms are choosing to list in London and some UK domiciled brands are looking to list elsewhere. This is creating some uncertainty over the City’s future position as a global financial centre,” said Haji.

“As we go into 2024, we are seeing a promising direction of travel from the Edinburgh Reforms package in the bid to boost competitiveness. While the Treasury Committee has highlighted that change is not happening quickly enough, part of the attractiveness of the UK is that our regulatory system is relatively stable. This, together with a plan for enhanced competitiveness will safeguard the UK’s future position on the global stage and boost long-term growth.”

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