Britain needs to restore stability to its finances to help reverse the fastest drop in financial sector sentiment in three years, a survey by business body CBI and consultants PwC said on Thursday.

Profitability growth in the sector remains robust and is expected to increase at a faster pace in October to December, the CBI/PwC survey said.

But sentiment in the third quarter to September fell at its fastest pace since September 2019, when it was hit by uncertainty around Brexit negotiations, the survey said.

It was completed on Sept. 23, the day UK finance minister Kwasi Kwarteng set out plans for tax cuts and big increases in borrowing, sending sterling and government bonds into freefall.

"While activity in the financial sector looks to be in a good position, with profitability and volumes growth remaining strong, the rapid fall in sentiment and lacklustre investment intentions illustrate the challenging conditions that firms find themselves in," CBI Chief Economist Rain Newton-Smith said.

"Recent market volatility stemming from the Government’s 'mini'-Budget – alongside other global developments – underlines the clear need to restore macro-stability and boost business confidence," Newton-Smith said.

Employment in the sector is set to decline at a quicker pace in the current quarter, perhaps a reflection of the weaker sentiment, while the value of souring bank loans is expected to increase modestly, the survey said.

(Reporting by Huw Jones; Editing by Bernadette Baum)