Britain’s financial services sector showed signs of stabilising in the third quarter, with business volumes falling only slightly following a steep contraction in the previous three months, according to the Confederation of British Industry.

The CBI’s latest Financial Services Survey recorded a weighted balance of minus 5 per cent for business volumes in the three months to September, a sharp improvement from minus 58 per cent in June.

Companies expect volumes to be broadly unchanged during the final quarter of the year, with a balance of minus 1 per cent.

Sentiment remained negative but also improved substantially, rising to minus 7 per cent from minus 34 per cent in the previous survey. Profitability followed a similar pattern, with the balance improving from minus 65 per cent to minus 6 per cent.

Financial services companies are more optimistic about profits in the coming quarter, forecasting a balance of plus 35 per cent.

Employment provided another bright spot. Headcount increased at its fastest pace since June 2024, with a balance of plus 49 per cent, compared with plus 14 per cent in June. Companies expect employment to continue growing over the next three months, albeit at a slower rate.

The survey, conducted between September 1 and 17, nevertheless highlighted potential risks. The value of non-performing loans fell sharply during the third quarter but companies expect it to increase strongly over the next three months.

Firms also intend to increase investment in information technology and land and buildings over the coming year, while reducing capital expenditure on vehicles, plant and machinery.

Louise Hellem, chief economist at the CBI, said the results indicated “some stabilisation in business conditions after a gloomy Q2”.

“The fall in business volumes eased substantially over Q3, which was mirrored by a slower decline in sentiment,” she said. “Looking ahead to the next quarter, firms expect business volumes to be broadly flat, while headcount is set to grow for a third consecutive quarter.”

The findings come as the government seeks to increase the competitiveness of a sector employing about 1.2mn people. Its ten-year Financial Services Growth and Competitiveness Strategy includes reforms to regulation, capital markets and investment, alongside measures announced under the Leeds Reforms.

The Treasury said in July that it had completed or made progress on a series of measures during the strategy’s first year, including changes to regulation, SME lending and digital markets.

Hellem called on the government to use the Autumn Budget to provide a “competitive and predictable environment” for the industry and warned against further sector-specific taxes.

The CBI argued that higher taxes on banks could undermine the government’s objective of increasing investment and strengthening the UK’s position as an international financial centre.