UK City firms report fastest turnaround in fortunes in 30 years

Britain’s financial services companies have reported a strong recovery in activity at the start of the year, in a surprise boost to the government after a gloomy end to 2025.Banks, insurers and investment managers said their businesses were growing, with a positive balance of nearly two-thirds noting an expansion, according to a long-running survey by the Confederation of British Industry (CBI), a lobby group. That contrasted with the negative balance of 38% in December, despite the start of the Iran" class="entity-link entity-event" data-entity-id="38678" data-entity-type="event">US-Israel war on Iran.It was the fastest turnaround in the sector’s fortunes in 30 years, since December 1996, the group said.Financial services companies such as banks, insurers and investors have been performing well in recent quarters. Strong profits pushed bank share prices to their highest since before the global financial crisis in the early months of the year, in part thanks to higher interest rates and despite the £11bn financial redress scheme for car loan customers.A stronger performance from the UK financial sector would be welcomed by Rachel Reeves, who has put the industry at the heart of efforts to increase GDP growth, calling it the “crown jewel” of the economy.The banks successfully argued against tax increases at last year’s budget, and Reeves has urged regulators to consider growth, as well as consumer protection, in policing the sector.John Cronin, a banking analyst at SeaPoint Insights, said: “The strength of activity observed in the first quarter is underpinned by supply-side factors in terms of improved credit availability and demand-side factors in the context of strong household and business financial resilience, in my view. However, conditions can change rapidly and the impact of the Middle East turmoil could quickly impact on the improved sentiments noted in the survey.”The survey ended on 18 March, after the start of the Iran war. However, respondents may not have appreciated at that point that the war would last more than a month and cause a global energy crisis, because of the prolonged closure of the Strait of Hormuz. The Bank of England has warned that the war could hit mortgage rates, which could dent demand for loans.Nevertheless, the surveyed companies said they expected business to continue growing at a rapid, though more moderate, pace in the next quarter.Alpesh Paleja, the 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.”He added, “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.”The CBI survey only had 58 respondents. However, the banks, building societies, insurers and investment managers that responded are likely to include some of the UK’s largest companies. The CBI still works with many of the UK’s biggest businesses, including the big four UK-headquartered banks: Barclays, HSBC, Lloyds Banking Group and NatWest Group.The CBI has worked to retain and rebuild its influence and membership after an existential crisis in 2023 prompted by the Guardian’s reporting of allegations of sexual misconduct by former staff members.