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CIOs in the financial sector face their fourth straight quarter of negative investment, reports the Confederation of British Industry in its Financial Services Survey, published today. The report, published with PricewaterhouseCoopers (PWC) outlined that business volumes for financial service providers "continued to fall sharply".

The Confederation of British Industry (CBI) discovered that IT, along with marketing, faces its fourth consecutive quarter of negative investment in the financial sector. CIOs and business leaders told the CBI and PWC that "uncertainty about demand was the greatest obstacle to investment".

The survey found that 47 per cent of financial firms had reported a decline in profitability, despite 40 per cent of firms surveyed saying they had reduced operating costs.

Drastic reductions in headcount have been the main source of cost cutting. Only last week London based global bank HSBC said it was reducing its back office and IT staff headcount by 1,200 and will extend an operation review to another 12 months, which could lead to a further round of job cuts. The CBI said the rate of job cuts in the financial sector is the fastest rate of attrition since June 1993 and it expects there to be another significant fall in headcount over the next quarter. With the increased uncertainty in banking staff churn has dropped for the fourth quarter running and financial organisations have continued to cut their training budgets.

Every sector of the financial services sector has seen a major fall in business volume, the CBI found and they expect to see continued falls in business volume from commercial clients and individuals over the next three months, but at perhaps a slower rate. As a result business sentiment continued to drop, with 34 per cent of firms saying they are less optimistic about the business situation than they were in December. Every respondent to the survey believes it will take more than six months for market conditions to recover.

"Over the past six months any hopes of the pain easing off have been disappointed, but conditions in the sector are not uniformly bad, as many general insurers fared quite well," said Ian McCafferty, the CBI chief economic advisor. He was not alone in seeing some hopes of stability resuming the financial sector. "The year ahead will be nothing short of challenging, although hopefully more predictable, and banks will continue to focus on developing customer profitability through carefully selecting those they wish to give credit to as well as cost cutting to improve margins," said Andrew Gray, the PWC UK banking advisory lead; he is cautiously hopeful of the market becoming more stable in the next quarter.