Despite Budget concerns, leaders remain bullish on business outlook for Q4: KPMG
In anticipation of the Chancellor’s forthcoming Budget, three quarters of financial services leaders foresee a moderate or greater impact on their operations, over a quarter expect the impact will be significant, but business outlook remains optimistic, a KPMG survey has found.
KPMG’s latest UK Financial Services Sentiment Survey is a quarterly poll which tracks business sentiment among over 150 leaders working mostly in banking but also insurance, asset and wealth management and private equity.
The survey found that almost a third of leaders (31%) are expecting the biggest impact to be in the form of sector-specific tax increases such as bank surcharges.
More than a quarter (26%) are expecting an impact on payroll costs, while 19% say the impact on talent from tax changes to non-doms will affect their business.
In the financial services sector, a significant majority (74%) of financial services chiefs feel that the UK’s tax regime for the sector is competitive compared to other major countries.
At the same time, the survey found that 40% of leaders feel that stability is the most important aspect of the tax system to stimulate sector growth.
Karim Haji, Global and UK head of financial services for KPMG, commented: “Leaders in the sector are gearing up for this Budget to have a considerable impact on their business. While there are notable expectations about sectoral tax rises, leaders will hope for a period of stability thereafter to ensure the current tax regime for financial services remains competitive.”
KPMG’s survey also revealed a decline in leaders’ confidence regarding the sector’s future under the new administration over the past two months.
While seven out of ten leaders expressed increased optimism about the sector’s prospects in the immediate aftermath of the election results, this positivity has since diminished, with only 59% of leaders currently holding such sentiments.
“It’s not completely unexpected to see a dip in confidence after a post-election high, but the speculation surrounding the Budget could be compounding this,” Karim stated. “This will drive greater need for clarity and certainty when it comes to financial services policy and plans to maintain the UK’s standing as a global financial centre.”
Despite Budget concerns, leaders remain optimistic on business outlook forecasting a strong fourth quarter. According to the report, the majority feeling confident about profitability (89%) and overall business growth (85%).
Increased demand for products and services (52%) drives this sentiment, followed by a more positive economic outlook (45%) and plans to enter new /launch new products (40%).
Inflation pressures are forecast by 42% of leaders as the biggest business challenge over the coming quarter, followed by 39% expecting interest rates to present the biggest hurdle.
A third of the participants anticipate cost pressures as the biggest challenge in the next three months.
Additionally, geopolitical risks, the drive to enhance ESG performance, and keeping up with technological advancements were ranked as the least significant challenges by 25% of the respondents.
Karim added: “It’s encouraging to see the sector forecasting a positive end to the year. While leaders are also optimistic about the economic outlook, the knock-on effects of a turbulent economy continue to weigh on their businesses.
“Leaders are dealing with a myriad of challenges and it’s easy to see how the more immediate, closer-to-home issues could detract from challenges that pose a greater threat to business longer term, such as ESG and technology advancements. It’s imperative that leaders don’t take their eye off these areas, given their significance to future business performance.”